A mutual fund is an open-end professionally managed investment fund that pools money from many investors to purchase securities. These investors may be retail or institutional in nature. A mutual fund’s portfolio is structured and maintained to match the investment objectives stated in its prospectus. In this blog I will tell you How To Invest in Mutual Funds.
Types Of Mutual Funds.
1. Money Market Fund
These mutual funds invest in money market instruments with maturity no longer than 12 months. Instruments such as government bonds, treasury bills, bankers’ acceptances, commercial paper and certificates of deposit. They are generally a safer investment, but with a lower potential return then other types of mutual funds.
2. Fixed Income Funds
Fixed Income funds mainly focus on generating regular income for the investors by investing in high dividend-generating stocks, government securities, certificate of deposits, corporate bonds, money market instruments and debentures.
3. Equity Funds
This type of fund try generating high returns by investing in the stocks of companies across all market capitalization. Equity mutual funds are the riskiest class of mutual funds, and hence, they have the potential to provide higher returns than debt and hybrid funds.
4. Balanced Funds
Balanced mutual funds, as the name suggests, are a type of income fund which invest equally in bond and stock instruments. The primary objective of these funds is generation of income, along with appreciation of capital.
5. Index Funds
An index fund is a type of mutual fund with a portfolio constructed to match or track the components of a financial market index, such as the Standard & Poor’s 500 Index (S&P 500). An index mutual fund is said to provide broad market exposure, low operating expenses and low portfolio turnover.
Purpose To Invest In Mutual Funds?
Before you invest in Mutual Funds, you should know what is your objective of Investing. It can be for buying a house, child’s education, wedding, retirement, etc. If you do not have a specific goal, you should at least have a clarity on how much wealth you wish to accumulate and in how much time.
Documents Required for KYC
In order to invest in a mutual fund, investors need to comply with the KYC guidelines. For this, the investor needs to submit copies of
Permanent Account Number (PAN) card, Proof of Residence, age proof, etc. as specified by the fund house.
How to Invest?
There are different ways on How to invest in mutual funds, such as OFFLINE and ONLINE. I will tell you both the ways
Offline Method :-
Investment through a broker
A mutual fund broker or a distributor is someone who will help you through the entire process of investment. He will provide you with all the information you need to make your investment, documents needed, etc. He will also offer guidance on which schemes you should invest in. For this, he will charge you a fee which will be deducted from the total investment amount.
Invest through a Bank
Banks are also intermediaries who distribute fund schemes of different AMCs. You can invest directly at your bank branch into fund schemes that you wish to invest in.
Through Official Fund House Websites
Most fund houses these days offer the online facility of investing in mutual funds. All you need to do is follow the instructions provided on the official site of the fund house, fill the relevant information, and submit it. The KYC process can also be completed online (e-KYC) for which you will need to enter your Aadhar number and PAN. Once the verification is done, you can start investing
Different Investment Applications (apps)
You can start Investing in Mutual Funds through different apps available, all you have to do is. – Register yourself into the apps, get done with your KYC. Once verified you are ready to invest.
List Of Applications :-
Why Should You Invest?
Investors enjoy the benefit of asset diversification, when they invest in mutual funds. Diversified portfolios invest in a variety of instruments, from low to high risk, such as bonds, stocks, international securities, etc. Underperformance of one fund can be balanced out by the performance of other funds in the portfolio. Having a diversified portfolio increases the chance of earning higher returns, while minimizing risks.
One of the biggest advantages of mutual funds is the ability to invest and redeem with relative ease, compared to other instruments. Investors have the advantage of getting their money back almost instantly in case of mutual funds, based on the Net Asset Value (NAV) at that time. The only thing to watch out for is exit load, which may apply to some funds. However, we do not recommend redeeming your investments unless your fund underperforms or you’ve reached your goals.
Unlike the traditional investing instruments, mutual funds come with less or even zero lock-in period, depending on the kind of fund you pick. This means you can redeem your investments in times of utmost need. While most of the funds do not have a lock-in period, tax-saving ELSS funds come with a lock-in period of 3 years, which is relatively lesser compared to bank deposits.
Higher return potential
Mutual funds, in general, have the potential to generate higher returns compared to traditional investment instruments, as they invest in a variety of market-linked instruments. So, those having a low risk-appetite could invest in debt mutual funds, which tend to deliver FD-beating returns.
Professionally managed and secure
Mutual funds are managed by professional fund managers, who are qualified experts in this field. They identify the best stocks in the market, and track their performance on a regular basis to ensure that they deliver high returns to the investors. They also help investors make an informed choice, when it comes to picking the right funds. What’s more? Mutual funds in India are moderated by the industry body, SEBI, which ensures transparency and security.