In a world where you can buy anything from a mobile phone to a refrigerator online, why should you not purchase mutual funds online too? A number of mutual fund companies as well as online portals have become aware of the need to offer mutual funds online, and are proliferating, slowly but steadily. Mutual fund companies, on the other hand, are quite active when it comes to promoting their transaction portals on the internet. If you wish to invest in mutual funds, you can do so online from the comfort of your home rather than visiting a fund house and doing it manually.
Online transactions have been increasing at a rapid pace over the past two years or so. The biggest fund house in India, HDFC Asset Management Co. Ltd., claims that 3.5 lakh customers use its online services. Until late 2016, this number was around 1 lakh. All fund houses have their own websites where investors can purchase and sell units of mutual funds. To transact on the websites of fund houses, you will require a username and password/PIN. The higher the number of websites you use to transact, the higher the number of usernames/passwords you will have to remember, which can be a bit of a task. It is for this reason that most people who purchase mutual funds online transact on other transaction portals where they have access to a variety of schemes from a variety of fund houses.
Investing directly from the website of the fund house
All the mutual fund schemes available today have two plans, viz. direct and regular. The direct plan basically allows investors to purchase mutual funds online without using the services of distributors. As such, the expense ratio of these plans is lower. The NAV for direct plans is also higher in comparison with regular plans due to the difference in the cost structure. If you wish to invest for the long term, direct plans can make quite a difference. Here is an example:
| Monthly SIP | Returns per annum | Tenure | Regular Plan | Direct Plan | Difference |
| Rs.15,000 | 12% | 15 years | Rs.74,93,703 | Rs.79,65,424 | Rs.4,71,721 |
| Rs.25,000 | 12% | 15 years | Rs.1,24,89,505 | Rs.1,32,75,707 | Rs.7,86,202 |
| Rs.15,000 | 12% | 10 years | Rs.34,50,580 | Rs.35,83,239 | Rs.1,32,658 |
| Rs.25,000 | 12% | 10 years | Rs.57,50,967 | Rs.59,72,064 | Rs.2,21,097 |
| Rs.15,000 | 8% | 15 years | Rs.51,90,573 | Rs.54,95,247 | Rs.3,04,673 |
| Rs.25,000 | 8% | 15 years | Rs.86,50,956 | Rs.91,58,744 | Rs.5,07,789 |
| Rs.15,000 | 8% | 10 years | Rs.27,44,191 | Rs.28,44,373 | Rs.1,00,182 |
| Rs.25,000 | 8% | 10 years | Rs.45,73,651 | Rs.47,40,622 | Rs.1,66,971 |
The direct route is ideal for those who have been investing in mutual funds for a while. First-time investors can find it rather difficult to choose the right scheme from the thousands of options available. In case you have been making investments in the conventional manner by filling forms, a few of the fund houses let you purchase units online without the initial registration. After you feed in your folio number along with your PAN and the bank account number that is registered with your mutual fund folio, you will be directed to your net banking page. You will then have to enter your net banking ID and password after which you must enter the amount you wish to invest and your transaction will be complete. Following this, you will have to apply for a username and PIN in order to carry out further transactions like redemptions or switches.
To apply for a username and PIN, your bank account must be linked by registering the fund house from which you wish to purchase mutual funds online in your net banking account. This can be done under the RTGS payment system by entering the fund house’s bank account details which can be found on the website of the fund house.
If you wish to buy mutual funds online, you will have to log in to your net banking account, choose the fund house as the payee under the RTGS system, choose the amount you wish to invest and transfer it after which you will receive the RTGS transaction number. You will then have to visit the website of the fund house, log in to your account, choose the schemes in which you wish to invest, and enter your RTGS transaction number.
The system operates in a different manner when it comes to Systematic Investment Plans. The fund house you choose will have to be added as a biller in your net banking account in much the same way as a utility (telephone or electricity) is added to make payments towards your monthly bills.
Investing through online portals
After your KYC is done, you will have to visit any investment portal you choose and open your account. The pre-filled application form must be printed and signed before you send it to the portal along with a KYC acknowledgment copy and a cancelled cheque. It is much easier to register for Systematic Investment Plans on a portal in comparison with registering on the website of the fund house. The online portal will have a bank mandate form which must be filled in and then printed before you send it back along with a cancelled cheque leaf.
Systematic Investment Plans are highly flexible. Some of the online portals allow investors to select any day for deducting the SIP amount from them bank account, limit the instalment amount when their mutual fund account balance reaches an upper limit, etc. Such flexibilities can only be availed when investing online.
Investing through banks or brokerages
A handful of banks offer mutual fund services online via online investment accounts that must be opened separately. In order to use the mutual fund services of these banks, you must also hold a bank account with the bank. The charges associated with them are usually nominal. In case you only wish to purchase mutual funds, a bank account and investment account is all you need when investing through a bank. However, if you also wish to purchase equities through a bank, you will require a demat account. Most of the online brokerages enable investors to map their existing mutual fund investments with their investment accounts.
Purchasing mutual funds online has become very simple thanks to the advancements in technology coupled with an increasing number of platforms that cater to investors. If you wish to invest in mutual funds, consider taking the online route not only because of the convenience, but also because it will help you save a considerable amount of time and effort you would otherwise expend by physically visiting a fund house or agent to invest in mutual funds.
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