How to Invest in Mutual Funds - An Easy Step-by-Step Guide

What are Mutual Funds?

Mutual funds are considered a financial basket, where individuals pool money to invest in various securities, including bonds and equities. Managed by experts and professionals, these funds are accumulated together to provide financial benefits and wealth to investors, aligned with their goals and objectives.

How to Invest in Mutual Funds (Step-by-step)? 

Investing in mutual funds is beneficial due to its various advantages. Below is a step-by-step guide on how one should invest in mutual funds: 

• Via Stockbrokers: Use stockbrokers offering online trading services to plan your investment in mutual funds through regular plans as AMFI-registered distributors.

• Bank-Assisted Mutual Fund Investment: You can access several services provided by banks, which offer regular plans through their branches or online platforms.

• Through Registered Investment Advisors (RIA): Go with SEBI Registered Investment Advisors (RIA) services, holding direct plans without AMC commissions. Though RIAs are chargeable, they have an unbiased framework which holds transparency and minimal conflict of interest for their users.

• Via Mutual Fund Distributors: Engage an AMFI registered distributor if you want personalised and strategic advice as investors. Moreover, regular plans involve higher costs, as distributors assist in risk assessment and selecting funds, which are often not directly charged.

• Direct Investment: You can directly invest with an Asset Management Company (AMC) through physical visits or internet portals. As new investors, you must abide by KYC norms. Many AMCs offer lower expense ratios and higher returns in direct plans, making this experience suitable for investors.

• Mutual Fund Investment through Mobile Apps: Download mobile apps provided by AMCs or distributors and have access to your mutual fund transaction, including SIPs and redemptions.

• Using Registrars and Transfer Agents (RTAs): RTAs facilitate mutual fund transactions to several fund houses, allowing investors to transact in both direct and regular plans. Check the RTA's website for different AMC coverage.

• Online Mutual Fund Investment: Access mutual fund investment options through AMC portals, RTA portals, or distributor websites. With these platforms, one can have convenient access and a chance to monitor the transaction.

How to invest in Mutual Funds through SIP?

Investing in Mutual Funds through Systematic Investment Plan (SIP) offers a convenient and disciplined approach to wealth creation. Follow these simple steps to start your SIP investment process:

• Begin by selecting the mutual fund scheme you wish to invest in and opt for the SIP option offered by the fund.

• Determine the amount you want to invest regularly through SIP and choose the frequency of investment, such as monthly, quarterly, or any other suitable interval. This systematic approach fosters consistent saving habits.

• Ensure easy SIP investments by setting up auto-debit instructions from your bank account to the mutual fund scheme.

How to invest in Mutual Funds through Lumpsum?

Investing in Mutual Funds has never been easier, thanks to the simple steps outlined below:

• Start by clicking on "Explore Funds" at the top of the page, which will redirect you to the mutual funds listing page, where you can browse various options.

• Narrow down your choices by filtering based on scheme type, risk appetite, returns, or select from the list of top-performing funds.

• Once filtered, review the listed mutual funds within the selected category, including essential information like minimum investment amount, annualised return, and ratings.

• Begin the investment process by entering your mobile number and completing the sign-in process using the received One-Time Password (OTP) .

• Provide your PAN (Permanent Account Number) and date of birth to verify your details. If your KYC (Know Your Customer) is incomplete, you may need to upload address proof and record a video for authentication.

• Input your bank account details to help ease transactions.

• Upload your signature and provide any other necessary details as required.

• Choose the mutual fund scheme you wish to invest in from the available options.

• Select the lump sum investment option and specify the desired investment amount. Then click on "Invest Now" to proceed.

• To complete the transaction, select your preferred payment mode, such as net banking, UPI, or NEFT/RTGS.

• Once the payment is processed, your investment in the chosen mutual fund will be successfully completed.

How to invest in Mutual Funds for Tax savings?

Investing in Mutual Funds for tax savings is a smart financial move. Consider Equity Linked Savings Schemes (ELSS) mutual funds, which offer a deduction of up to Rs. 1,50,000 on taxable income under Section 80C of the Income Tax Act. By investing in ELSS, you not only save on taxes but also potentially grow your wealth. Keep in mind that ELSS units are locked in for 3 years, so ensure you have a long-term investment horizon before committing funds.

How much should you invest in Mutual Funds?

Determining the amount to invest in mutual fund schemes hinges on several factors, including financial goals, risk appetite, investment horizon, and current financial status. While there's no statutory minimum investment stipulated, most mutual funds in India set their own minimum investment thresholds.

Typically, the minimum investment amount for mutual fund schemes falls within a broad range. However, certain fund categories may necessitate a higher minimum investment. It's essential to assess your financial capacity and investment objectives carefully before deciding on the amount to invest.

Why should you invest in Mutual Funds? 

Investing in mutual funds offers many advantages that make them an attractive option for both novice and experienced investors. Firstly, mutual funds provide diversification, spreading investments across various assets to mitigate risk. With professional management by seasoned fund managers, investors benefit from expert decision-making and market monitoring. Because mutual funds are liquid, investors can easily buy or sell units. They are also accessible and affordable, catering to investors with varying capital levels.

The flexibility of mutual funds provides options tailored to individual financial objectives and risk preferences. Certain types of mutual funds, like Equity Linked Saving Schemes (ELSS), offer tax benefits. Lastly, regulatory oversight by bodies like the Securities and Exchange Board of India (SEBI) ensures investor protection and transparency.

Things to consider before investing in Mutual Funds? 

Investing in mutual funds offers many advantages that make them an attractive option for both novice and experienced investors. Firstly, mutual funds provide diversification, spreading investments across various assets to mitigate risk. With professional management by seasoned fund managers, investors benefit from expert decision-making and market monitoring. Because mutual funds are liquid, investors can easily buy or sell units. They are also accessible and affordable, catering to investors with varying capital levels.

• Determine financial objectives and investment horizon: Define your investment goals, whether it's saving for retirement, purchasing a home, or other financial milestones.

• Assess risk tolerance: Evaluate how much risk you are comfortable with based on your age, financial situation, and investment goals. Adjust your investment strategy accordingly.

• Choose the mutual fund type: Select a fund that matches your financial goals and risk tolerance, considering factors such as asset allocation and investment strategy.

• Decide on active or passive management: Understand the differences between actively managed and passively managed funds and choose the management style that best suits your investment objectives.

• Check fund performance: Evaluate the performance of shortlisted funds over recent years and compare them to their peers to gauge their historical returns.

• Analyse expense ratio: Consider the expense ratio, which reflects the fees deducted from your investment. Opt for funds with lower expense ratios to maximise returns.

• Check liquidity and fund size: Assess the ease of buying and selling fund shares and consider the fund's size, as larger funds tend to be more liquid.

• Assess fund manager expertise: Review the experience and track record of the fund manager to ensure they have the expertise to make sound investment decisions.

• Read the policy document: Thoroughly examine the fund's policy document to understand its investment objective, risk profile, fees, and other relevant details.

• Ensure complementarity with existing investments: Ensure that the chosen fund complements your existing investment portfolio and contributes to achieving your overall financial goals.

How to calculate returns on your Mutual Fund Investments?

You can utilise a SIP Calculator to calculate returns on your Mutual Fund Investments. This tool helps estimate the potential returns from your Systematic Investment Plan (SIP) based on factors such as investment amount, duration, and expected rate of return. By inputting these variables into the SIP Calculator, investors can obtain an approximate idea of the future value of their investments. This enables better financial planning and decision-making by providing insights into the growth potential of their mutual fund investments over time.

Mutual Fund Investment FAQs

1. Is it safe to invest in Mutual Funds?

Investing in Mutual Funds is generally considered safe due to diversification, professional management, and regulatory oversight. However, like all investments, there are risks involved, including market fluctuations

2. Is SIP the most profitable mutual fund investment? 

SIP can be profitable over the long term due to its disciplined approach of investing regularly, benefitting from rupee cost averaging and compounding returns.

3. Are Mutual Funds tax free? 

Mutual funds are not entirely tax-free. Depending on the type of mutual fund and the duration of investment, investors may be subject to capital gains tax.

4. Can I get monthly income from a mutual fund?

Certain mutual funds, such as dividend-paying funds or systematic withdrawal plans (SWP), can provide investors with regular monthly income distributions.

5. How to invest in Mutual Funds offline? 

If you are wondering how to invest in mutual funds offline, follow these steps:

• Visit the nearest Asset Management Company (AMC) office.

• Complete your KYC process if not already done.

• Fill and submit the Mutual Fund Form at the AMC branch

6. Is a Demat account required for investing in Mutual Funds?

No, having a Demat account is not mandatory for purchasing mutual fund units.

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