Mutual fund investment Complete guide

How to invest in Mutual Funds in India?

 Mutual Fund is considered a simpler and more preferable way to get some exposure in equity and invest in the stock markets. So How to invest in Mutual Funds in India? Let’s check out in this post.
Before you invest in mutual funds, you need to have proper understanding of it. You can get a detailed understanding of mutual funds in India and how they function over here.
Once you are ready to invest in mutual funds and get your equity portfolio going, you need to know what sort of investment options mutual funds provide apart from the flexibility and convenience over directly investing in shares.

What are my investment options within the Mutual Funds?

Mutual Funds come with mainly 3 investment options; Growth, Dividend and Dividend re-investment.
Under Growth Option, whatever appreciation you earn on the fund value, is added to it and the entire fund value with the returns is received at the end of the tenure. This is a good option and should be chosen as a long term investment will give higher compounded returns compared to the other two options.
Under the Dividend Option, the mutual fund house will make periodic payouts to the investors depending on the appreciation of fund value. This option should be chosen if you want some sort of a money back scheme, where in you keep getting certain amount in between, during the tenure of your investment. This dividend payback is not guaranteed as it is market dependent and performance based. Also the other drawback is, with every dividend payout, your returns on maturity are reduced, as it is with most money back schemes.

Under Dividend Re-investment Option, whatever dividend the company declares, will be utilized to purchase more units in the same fund and thus you can purchase more units without investing additional money. It is like the fund itself is earning and purchasing additional units. But as it is dividend based, this reinvestment can vary and is again dependant on fund performance.

Generally speaking, Growth option should be your first choice for making any investment in Mutual Funds as it will not make any payouts and all the appreciation in the fund value or the returns earned will be added to your eventual corpus on maturity. This will give you the benefits of compounding and give more returns. Also dividend re-investment is a good option as even though it distributes dividends, that amount will again purchase you additional units in the fund. Dividend option should only be taken if you wish to have some sort of money back investment or as a means to some variable additional income.

How to invest in Mutual Funds in India?

Investment Advisor: Traditionally in India we always take advice from friends and family or some finance advisor. Same can be followed for mutual fund investment in India. You can ask someone you trust who has invested in mutual funds before or your finance or investment advisor, to guide you through the fund selection and the process of investing in mutual funds.
Banks: You can also do it through your banks as lot of banks partner with lot of fund houses and will help you choose a mutual fund to invest in.
Fund Houses: You can contact the fund house or AMC itself, by visiting their website. If you do not know the website, just Google it and you will have all the details and you need to just contact them and in most cases their representative may contact you for further process. Demat: In case you have a Demat account, you can even do it online through your demat account.

Things to remember while Investing in Mutual Funds in India:

KYC: For mutual fund investments in India, SEBI has made it mandatory to have KYC process done for all its applicants. KYC is Know Your Customer and you need to have done this procedure to be able to invest in Mutual Funds. However, worry not as if you are a first time investor without KYC, the medium through which you are investing in the mutual fund India i.e. Investment Advisor, Banks, Fund House etc., will help you through it.
PAN: You need to have a PAN for this as well as for investing in Mutual Funds. So before you think of investing in Mutual Funds, get yourself a PAN.

Choosing the right fund:

Make sure to research about the fund you invest in, even if it is advised to you by you finance advisor or bank. Check the average rate of return of the fund for the last five years. Again, Google the name of the fund you are interested in and type ‘last 5 year performance of fund ABC in India’. You will get the results and also you may get other related funds to compare the performance. Also check the performance of the fund when the markets were down. Compare 4-5 funds and then decide on one.

Investment options in Mutual Funds?

You can invest in mutual funds either regularly via SIP or Systematic investment plan or lump sum payments as and when you have funds. However, it is advised that SIP should be the way to go as it will work on the law of averaging and your losses and profits will average out in the long run, giving you better returns compared to lump sum investments. It is said that one should buy more when the markets are low and less when the markets go up. Also what to buy is important. All these things are taken care of by Mutual Funds in India and particularly SIP.
In an SIP you invest a fixed amount every month irrespective of market volatility. So if you invest Rs. 1,000 monthly, when the markets are low, you 1,000 will automatically purchase more and when they are up, the same 1,000 will be able to buy less.
Mutual Funds will have professionals handling your investments; hence you need not have to be a share market expert. However, remember to check the fund performance for last 5 years and compare the rate of returns before investing. You financial advisor may also guide with the same and Google it to be sure. Happy Investing!!!

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