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  • How to Invest in Mutual Funds?

  • 5 Simple Steps to Invest in Mutual Funds Online

    1. Understand your risk capacity and risk tolerance. This process of identifying the amount of risk you are capable of taking is referred to as risk profiling.
    2. The next step is asset allocation. Once you identify your risk profile, you should look to divide your money between various asset classes. Ideally your asset allocation should have a mix of both equity and debt instruments so as to balance out the risks.
    3. Then you should identify the funds that invest in each asset class. You can compare mutual funds based on investment objective and past performance.
    4. Decide on the mutual fund schemes you will be investing in and make the application online or offline.
    5. Diversification of your investments and follow-ups are important to ensure that you get the best out of your investment.
     Mutual Fund Investment

    Types of Mutual Funds

    Mutual funds types are broadly classified on the basis of - investment objective, structure, and nature of the schemes. When classified according to the investment objective, mutual funds can be of 7 types - equity or growth funds, fixed income funds or debt funds, tax saving funds, money market or liquid funds, balanced funds, gilt funds, and exchange-traded funds (ETFs).

    Based on the structure, mutual funds can be of 2 types - close-ended and open-ended schemes. When mutual funds are classified on the basis of nature, they can be of 3 types - equity, debt, and balanced. There is an overlap in the classification of some schemes like equity growth funds which can fall under classification based on investment objective as well as classification based on nature.

    We have explained some of the types of mutual funds, below:

    Growth or Equity Schemes - These funds invest in equity shares and the investment objective is capital gains over medium or long-term. They are associated with high risks as they are linked to the highly volatile stock markets but over long term, they offer good returns. Hence, investors having a high appetite for risk find these schemes to be an ideal investment option. Growth funds can further be classified into diversified, sector, and index funds.

    Debt Funds - Also known as fixed income funds, they invest in fixed income or debt securities such as debentures, corporate bonds, commercial papers, government securities, and various money market instruments. For those who seek a regular, steady, and risk-free income, debt funds can be an ideal choice. Gilt funds, liquid funds, short-term plans, income funds, and MIPs are the subcategories of debt funds.

    Balanced Funds - These funds invest in a mix of debt instruments and equity shares. Investors can expect a regular income and growth at the same time with these funds. They offer a good investment option for investors who are ready to take moderate risks over medium or long-term.

    Tax Saving Funds - Anyone looking to grow their capital while also saving tax can opt for tax saving schemes. Investors can enjoy tax rebates under Section 80C of the Income Tax Act, 1961 through tax saving funds, also known as equity-linked savings schemes.

    Exchange-Traded Funds (ETFs) - An ETF trades in a stock exchange and owns a basket of assets such as bonds, gold bars, oil futures, foreign currency, etc. It offers the flexibility of purchasing and selling units on the stock exchanges throughout the day.

    Open-ended schemes - In an open-ended scheme, units are bought and sold continuously and hence, allows investors to enter and exit according to their convenience. Purchase and sale of funds are done at the Net Asset Value (NAV).

    Close-ended schemes - In this type of scheme, the unit capital is fixed and only a specific number of units can be sold. The units in a close-ended scheme cannot be bought by the investor after the New Fund Offer (NFO) has passed which means they cannot exit the scheme before the end of the term.

    Costs associated with investing in Mutual Funds

    The fund value is calculated as per the Net Asset Value (NAV), which is the value of the fund’s portfolio net of expenses. This is calculated after every business day by the AMC.

    AMCs will charge you an administration fee, which covers their salaries, brokerage, advertising and other administrative expenses. This is usually measured using an expense ratio. The lower the expense ratio, the lower the cost of investing in that Mutual Fund.

    AMCs may also charge loads, which are basically sales charges incurred by the company in the form of distribution costs.

    If you are unfamiliar with associated charges, you might get into a position where the profits from your investment are reduced considerably due to overhead expenses. So, it’s a good habit to read the fine print for details on expenses and fees related to a Mutual Fund.

    How to Invest in Mutual Fund

    How to invest in Mutual Funds in Detail

    Before you decide to invest in a mutual fund, it is important to keep the below points in mind. Doing so will help you choose the right kind of funds to invest in, and help you accumulate wealth over time.

    1. Identify your purpose for investing -

      This is the first step towards investing in a mutual fund. You need to define your investment goals which can be - 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. Identifying an investment objective helps the investor zero in on the investment options based on level of risk, payment method, lock-in period, etc.

    2. Fulfill the Know Your Customer (KYC) requirements -

      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.

    3. Know about the schemes available -

      The mutual fund market is flooded with options. There are schemes to suit almost every need of the investor. Before investing, make sure you have done your homework by exploring the market to understand the different types of schemes available. After you have done that, align it with your investment objective, your risk appetite, your affordability and see what suits you best. Seek the help of a financial advisor if you are not sure about which scheme to invest in. In the end, it is your money. You need to ensure that it is used to fetch maximum returns

    4. Consider the risk factors -

      Remember that investing in mutual funds comes with a set of risks. Schemes that offer high returns is often accompanied with high risks. If you have a high appetite for risk and wish to accomplish high returns, you can invest in equity schemes. On the other hand, if you do not want to risk your investment and are okay with moderate returns, you can go for debt schemes.

    After you have identified your investment objectives, fulfilled the KYC requirements, and explored the various schemes, you can start investing in mutual funds. A bank account is also a mandate while making a mutual fund investment. Most mutual fund houses will ask for a physical or an online copy of a cancelled cheque leaf bearing the IFSC (Indian Financial System Code) and MICR (Magnetic Ink Character Recognition) of the bank.

    Ways to invest in Mutual Funds

    There are different ways in which mutual fund investments can be made. They are:

    1. Offline investment directly with the fund house

      You can invest in schemes of a mutual fund by visiting the nearest branch office of the fund house. Just ensure that you carry a copy of the below documents -

      • Proof of Address
      • Proof of Identity
      • Cancelled Cheque Leaf
      • Passport Size photograph

      The fund house will provide you with an application form which you will need to fill and submit, along with the necessary documents.

    2. Offline 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 including the features of various schemes, 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.

    3. Online through the official website

      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. The information will be verified at the backend and once the verification is done, you can start investing. The online process of investing in mutual funds is easy, quick, and hassle-free and hence, is preferred by most investors.

    4. Through an app

      Many fund houses allow investors to make investments through an app which can be downloaded on your mobile device. The app will allow investors to invest in mutual fund schemes, buy or sell units, view account statements, and check other details concerning your folio. Some of the fund houses that allow investments through an app are SBI Mutual Fund, Axis Mutual Fund, ICICI Prudential Mutual Fund, Aditya Birla SunLife Mutual Funds, and HDFC Mutual Funds. Some apps like myCAMS and Karvy allow investors to invest as well as access the details of all their investments from multiple fund houses, on one platform.

    Why should you invest in Mutual Funds?

    As stated above, mutual funds are professionally managed investment vehicles that will compound your money over a long term. Mutual funds may invest in a variety of instruments like equity, debt, money market, etc., and fetch favourable returns on your investment. There are more reasons why you should invest in mutual funds and we have picked the top ones for you below:

    1. Professional management

      Mutual funds are managed by professional fund managers who research and keep a track of the markets, identify the rights stocks, and buy and sell them at an appropriate time so as to generate favourable returns on your investment. Fund managers also analyse the performance of firms before they decide to invest in their stocks. Also, when you buy units of a mutual fund scheme, the scheme information document (SID) will have the professional summary of the fund manager which includes the number of years of work experience, the kind of funds managed, and the performance of the funds managed by him/her. So, you can be rest assured that your money is in the right hands.

    2. Higher returns

      Compared to term deposits such as Fixed Deposits (FDs), Recurring Deposits (RDs), etc., mutual funds offer better returns on your investments by investing in a variety of instruments. Equity mutual funds present an excellent opportunity to investors to enjoy higher returns but at the same time are accompanied with high risks and hence, are ideal for investors with a high risk appetite. Debt funds, on the other hand, offer lower risk and fetch better returns than term deposits.

    3. Diversification

      Perhaps one of the greatest benefits that mutual funds offer is diversification. By investing in a wide range of asset classes and stocks, mutual funds reduce the risk by diversifying the portfolio. Therefore, even if one asset/stock is not performing well, the performance of other assets can balance it out and you can still enjoy favourable returns on your investment. To reduce the risk further, you can diversify your portfolio by investing in different kinds of mutual funds. Seek the help of a financial advisor if you are not sure about which funds to invest in and how to diversify or balance your portfolio.

    4. Convenience

      Investing in mutual funds has been made quick, hassle-free, and simple by many fund houses who offer the online facility of investing. Just by clicking a few buttons, you can start investing in a mutual fund scheme of your choice. Even the KYC process can now be done online and investors can invest up to Rs.50,000 using the e-KYC facility. However, for investments above Rs.50,000, investors are required to complete the physical KYC process.

    5. Low cost

      You can start investing in a mutual fund for as low as Rs.5,000 (lump sum) and Rs.500 for a monthly SIP (Systematic Investment Plan). Therefore, you do not have to wait to accumulate a large sum in order to start investing. Also, if you invest in a Direct Plan of a mutual fund scheme, you do not have to pay any additional commission to distributors or agents.

    6. Disciplined investing

      To cultivate a habit of regular investing, mutual funds offer a facility known as a Systematic Investment Plan (SIP). An SIP allows investors to invest small amounts regularly, the frequency of which can be weekly, monthly, or quarterly. An auto-debit facility can be set up for your SIP where a fixed sum will automatically be debited from your bank account every month. An SIP offers an excellent way to invest regularly and without having to manually invest each time.

      Now that you know about the benefits of investing in mutual funds and how to invest in them, start investing and see your wealth grow.

    Trending Mutual Funds Articles 2018

    • What is mutual fund redemption and how it works?

      Redemption is the process of redeeming or withdrawing units from a mutual fund for receiving the returns. An investor can redeem the fund units either by visiting the registered website of the concerned Asset Management company or can place an offline redemption request by submitting the Redemption Request Form. When an investor withdraws units from a mutual fund, the amount, also known as redemption proceed, directly goes into his/her registered bank account within 3-4 working days. In certain situations, the investors have to pay an exit load or certain charges while withdrawing the fund unit.

      However, deciding the right time to redeem a mutual fund is extremely important for the investors to reap the maximum profit. Even though the investors tend to redeem units when the market is jittery, at times uncertain markets can also end up giving good returns. This is why it is important to consult with the fund manager or financial advisors before taking the call. Read More...

    • Mutual Funds- What are they, their types and GST impact

      Mutual funds are professionally managed investment programmes run by the Asset Management Companies (AMCs). These investment vehicles are funded by the shareholders who capitalise their money in the funds for generating profit or returns. Ideally, these funds invest the collected money in stocks, bonds, debt instruments, and multiple other money market securities. The fund manager is the person who shoulders the entire responsibility of managing and monitoring a fund. Since the mutual funds invest the money collected from the investors on their behalf, a small amount of fee is charged by the fund houses for managing the portfolio. Every mutual fund in India is registered with the Securities and Exchange Board of India (SEBI).

      Coming to the types, the mutual funds are broadly categorised as per their structure, investment objective, and asset class. After the introduction of the Goods and Service Tax (GST), mutual funds have become a little bit costlier with increased tax liabilities for the investors. Read More...

    • Importance of the fund manager in a mutual fund

      The onus of managing a mutual fund entirely lies on the fund manager. He/she plays a significant role in making a fund popular while also maintaining it in a professional way. Besides distributing the assets in the best-suited mutual funds to offer optimum benefits to the investors, they are also responsible for managing and tracking the performance of the fund. He/she even has the right to hire other trained employees to monitor the assets and determine the right selling time to generate profit.

      Since the managers have a great impact on the sales and retention of a fund, the AMCs maintain a pool of experienced fund managers so that a fund can be immediately allotted to a new manager after the current manager moves off. In this way, they try to retain the customers from departing after the leave of a particular manager. In absence of a dedicated fund manager, the customers have to be more alert and keep on tracking the fund’s performance. Read More...

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    News About Mutual Funds

    • AMFI to Delay Campaign for Promotion of Debt Funds Due to Market Crisis

      Reliance Nippon Life Asset Management (RNAM) - earlier known as Reliance Capital Asset Management Limited - has received the mandate from the Employees’ State Insurance Corporation (ESIC) in order to manage its funds. The total investment of the ESIC was at Rs.59,382 crore as recorded on 31 March 2017. As per the statements from the officials of Reliance Capital during a press release, RNAM has received this prestigious mandate after successfully fulfilling an independent competitive technical and financial bidding process. The ESIC considered several factors before deciding to award the mandate to the firm. These factors included the experience of the company in managing debt funds and its past record in managing similar funds along with its risk management practices, operational processes, and financial strength.

      Interestingly, the mutual fund company already manages mandates from several reputed organisations such as the Coal Mines Provident Fund Organization (CMPFO), the Employees’ Provident Fund Organization (EPFO), and the Pension Fund Regulatory and Development Authority (PFRDA). Hence, Reliance Nippon Life Asset Management is the only asset management company to handle all the four prestigious mandates. According to the Executive Director and Chief Executive Office at Reliance Nippon Life Asset Management, Sundeep Sikka, the mutual fund company is extremely proud to have received this mandate and reaffirms its strong investment processes along with its consistent track record of delivering returns. The total asset under management (AUM) of the firm currently stands at Rs.4.10 lakh crore. The total number of investor folios at RNAM was 83 lakh as of June 2018, along with a track record of over 22 years.

      18 October 2018

    • Mutual funds industry asked by the UIDAI to stop Aadhaar-based authentication

      The mutual funds industry has been asked by the UIDAI (Unique Identification Authority of India) to stop using Aadhaar-based authentication to fulfil the KYC (Know Your Customer) norms. The UIDAI has sent a letter requesting the same to the R&T (registrar and transfer) agents and a few online distributors. These firms are required to send a letter of confirmation to the UIDAI stating that they have ended the Aadhaar-based authentication, along with the enumeration of an exit plan. The deadline for doing this is 20 October 2018.

      The CEO of the AMFI (Association of Mutual Funds in India), Mr. N S Venkatesh has stated that there will be a meeting held to discuss an alternative where all the stakeholders including R&Ts and registrars will participate. Previously, Aadhaar-based authentication was leveraged to bring customers on-board through the online medium as well as directly. The OTP-based Aadhaar-based e-KYC was another quick way to invest in mutual funds but it came with a restriction of investors being able to invest only up to Rs.50,000 annually per fund house.

      17 October 2018

    • IIFL acquires 3/4th stocks of KadaiEshwar Housing Finance

      Around three-fourths of the stakes of KadaiEshwar Housing Finance has been acquired by IIFL India Private Equity Fund. The Non-Banking Financial Company (NBFC) sold stakes worth Rs.100 crore to IIFL. The Reserve Bank of India (RBI) has received an application from the new venture for a certificate of registration. The new venture will see IIFL PE controlling the management of KadaiEshwar Housing Finance and is likely to hit the capital market by January 2019. The launch of the NBFC was done by C. Ilango, ex-MD at Can Fin Homes.

      The IIFL India Private Equity Fund was launched in May 2018 by the IIFL Asset Management with its highlight on backing entrepreneurs. The fund was launched with a capital of Rs.2,000 crore by the AMC (Asset Management Company) which at the moment manages investments worth Rs.20,000 crore. IIFL AMC as on 31 March 2018 has an AUM (Assets Under Management) of $5 billion.

      16 October 2018

    • Investors Likely to Shift to Low-Risk Mutual Fund Schemes

      As per the statements of the Head of Fixed Income at Axis Mutual Funds, investors might shift from mutual fund products with a high-risk factor to the ones with a comparatively low-risk factor in a bid to protect themselves from the market rout. Even though Indian equities have been performing the best in all schemes from the Asian region, they have recently lost most their yearly profits. This can be attributed to the rising prices of oil, the declining value of rupee, and the rout in non-bank lenders caused by the defaults by Infrastructure Leasing & Financial Services (IL&FS). As per the industry data released by the Association of Mutual Funds of India (AMFI), several investors have pulled out funds worth more than Rs.2 lakh crore from the liquid and money market segment of the market during the last month. This marked the highest fund outflow from money market schemes in more than a decade. This contributed to a total outflow of Rs.2.3 lakh crore from all schemes combined together, as opposed to a total inflow of funds worth Rs.1.74 lakh crore during August 2018.

      15 October 2018

    • 54 out of 65 equity schemes deliver negative returns in the past 1 year

      Equity mutual funds do not seem to be at a satisfactory state at the moment. More than half of the total number of equity schemes have delivered negative returns in the last 1 year. Out of the total 65 equity funds, 54 schemes have fetched negative returns in the mentioned period. Taking 34 mid and small cap equity mutual funds, only 2 have offered positive returns. In the large cap segment, 22 out of 31 equity schemes have recorded returns in negative. The schemes that were among the worst performers over a 1-year period in the small cap category include HSBC Small Cap Equity Fund, Sundaram Small Cap Fund, and Aditya Birla Sun Life Small Cap Fund. These schemes saw a loss that ranges between 21% and 24%.

      In the large cap segment, the top losers were DSP Top 100, IDBI India Top 100 Equity Fund, and JM Core 11 Fund, all delivering negative returns that range from -8% to -11.9%. Worst performers in the mid cap category include SBI Magnum Midcap Fund and BNP Paribas Midcap fund. According to the data released by Value Research, the average returns offered by small and midcap firms were -14.79% and -11.56% respectively.

      12 October 2018

    • Auto Stocks Plummet Further to Hit a 20-Month Low

      The sectoral index of auto stocks have dropped by nearly 3% and the hike in fuel prices and higher insurance premiums have been attributed to the fall in the stock market. The BSE Auto index has shed 21.45% which is a 20-month low.

      High fuel prices, Kerala floods, rise in insurance premiums and off season for big purchases has been identified as contributing factors.

      Tata Motors Ltd, TVS Motor Company, Hero MotoCorp Ltd, Bajaj Auto Ltd, and Maruti Suzuki India Ltd are some among the BSE Auto Index that have lost 16% to 47% in 2018. The only companies that have gained in the auto industry are the stocks of Exide Industries Ltd, Mahindra and Mahindra Ltd, and Ashok Leyland Ltd.

      10 October 2018

    • Bi-monthly monetary policy of RBI may impact debt mutual fund investors

      The Reserve Bank of India (RBI), in its recent bi-monthly monetary policy, has made no changes in the repo rate which stands at 6.5% and reverse repo rate at 6.25%. It seems like the RBI will be steady with keeping the monetary policy tight so as to achieve the CPI (Consumer Price Index) target of 4% which may vary by 2%. The Monetary Policy Committee (MPC) of the RBI has quoted international developments as one of the reasons behind the decision of keeping the rates unchanged.

      The statement of RBI on the unaltered repo and reverse repo rates has come as a surprise to many in the financial market as a rate hike was predicted by them. This decision of RBI may have been boosted by the food inflation numbers and the depressed general inflation. For debt mutual fund investors this may be bad news as they have been badly hit by rising yields from the previous year. Hence, investors in debt schemes are advised to invest for shorter durations.

      9 October 2018

    • Government intervenes to pull IL&FS from catastrophic damage

      The government of India has revealed in a recent statement that it was compelled to oversee the management of the troubled IL&FS (Infrastructure Leasing & Financial Services) because of the fear of its impact on the economy and financial markets. The shadow banking firm IL&FS had recently defaulted on a series of payments and is under a lot of debt obligations to creditors. The downfall of IL&FS has impaired the confidence of investors in the shadow banking sector in India and this has resulted in the decline of the bond and stock markets. It has also caused panic in the mutual fund industry as the industry has a huge exposure to financing firms such as the IL&FS.

      The Ministry of Corporate Affairs has filed a 36-page petition at the company law tribunal accusing the board of IL&FS of mismanagement and has compared it to the ‘titanic ship’. In the petition, the ministry has sought permission from the tribunal who in turn has approved it, to take over the board and replace the management executives. The IL&FS needed saving as around 2/3rd of the company’s accumulated debt of Rs.91,000 crore was from BSBs (Public Sector Banks).

      8 October 2018

    • New equity scheme to be launched by Invesco Mutual Fund

      The Securities and Exchange Board of India (SEBI) has received an application from private investment firm, Invesco Mutual Fund to launch a new equity savings scheme. The scheme will be known as Invesco India Equity Savings Fund and the scheme will make investments in derivatives (25% to 75%) which will include stock futures, index futures, stock options, and index options. Around 15% to 40% of the investments of the scheme will be deployed in equities while 10% to 35% will be allocated to money market and debt securities.

      The Invesco India Equity Savings Fund will be available in both direct and regular plans, and growth and dividend options. A minimum of Rs.5,000 is needed to invest in this scheme which will be benchmarked against the Nifty Equity Savings Index. An exit load of 1% will be charged if investors redeem or switch out before 1 year from unit allotment date. Taher Badshah, Krishna Cheemalapati, Amit Ganatra, and Neelesh Dhamnaskar are the fund managers for this scheme.

      4 October 2018

    • Proposal to Set Up Mutual Fund Approved by Geojit Financial Services

      The Board of Directors of Geojit Financial Services Ltd. has passed a circular resolution dated 28 September 2018 to alter the object clause of the company which mentions sponsoring the set up of a Mutual Fund. Through this circular, the asset management company has approved the amendment of the Memorandum of Association of the company for this reason. The Board has also taken the decision to conduct a postal ballot in line with the Section 110 of the Companies Act, 2013 in order to get the approval of the shareholders by way of special resolution for the amendment of the Object Clause of Memorandum of Association of the company. Furthermore, the Board has also adopted the calendar of events for the proposed postal ballot.

      The shares of Geojit Financial Services Ltd. was last trading in the Bombay Stock Exchange (BSE) and stood at Rs.48.2 as opposed to the previous close at Rs. 51.7. Additionally, the total number of shares that were traded during the entire day was at 14,679 in more than 192 trades. The intraday high of stock was at Rs.52.75, while the intraday low was Rs.47.55. The shares witnessed a net turnover of Rs.7,28,808 for the entire day.

      3 October 2018

    GST rate of 18% applicable for all financial services effective July 1, 2017.

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