“Mutual Funds are subject to market risk. Please read all scheme related documents carefully before investing.” This is, often, the one thing we know about mutual funds. It is just a disclaimer. Investing in mutual funds isn’t that intimidating as it sounds. Also, investing in mutual funds isn’t rocket science. This article guides you on how to invest in mutual funds.
A Mutual Fund pools investments from several investors with a common investment objective. Thus collected money is invested across asset classes as defined in the investment objective of the fund.
Like shares have a trade price, a mutual fund unit has Net Asset Value (NAV) per Unit. The NAV represents the market value of the fund on a given day. Also, NAV is the net of all expenses and liabilities plus income accrued, divided by the outstanding number of units in the scheme.
Each fund has a professional fund manager. The fund manager continuously tracks the fund investments and makes necessary adjustments to the portfolio. In return, the fund house charges a small fee. This is deducted from the investment.
Mutual Funds are, in most cases, the best way to invest. These allow small investments. Systematic Investment Plans (SIPs) allow investors to invest small amounts regularly.
A mutual fund is offered by an Asset Management Company (AMC) and regulated by the Securities and Exchange Board of India (SEBI).
How to Invest in Mutual Funds for Beginners?
Mutual Funds are formed when money is pooled from multiple investors to buy shares and bonds. They are well-regulated investments that are professionally managed, which give significant returns that beat the benchmark. Also, investing in mutual funds provides access to large portfolios, which is otherwise difficult to manage. One can invest in mutual funds with small amounts of money. Therefore, making it easier for small investors to invest in more number of stocks.
Investing in mutual funds is beneficial for investors. However, as beginners, before investing in mutual funds, one must know the set of rules to be followed. These rules will make investing in mutual funds for beginners more comfortable.
Set or identify your goal
Identifying a goal or a target to reach is essential. Let it be big goals like retirement or small goals like owning a phone. Everything counts as a goal. One must be able to identify their goal and attach a monetary value to it. The next step is to define the tenure of the goal. In how many years will you want to achieve the goal? And then categorize it as long or short term goals. It is important to define a tenure for the goal because mutual funds have both long and short term investment options. For short term goals (within three years), debt mutual funds are the right option. For long-term goals (5 years and above), equity mutual funds are the best fit.
The suitable mutual fund type
Picking the right mutual fund type is very important to earn returns from an investment. Choosing the right asset type based on one’s age, income, and understanding of risk is important. For beginners, it is always recommended to take the advice of professionals. At Scripbox, we help you estimate your goal and create a personalized financial plan. We take into consideration your age, income, goal tenure, and understanding of risk before we curate the best funds to make an ideal portfolio.
Select the mutual fund scheme
Once the mutual fund type is selected, the next step would be to choose a mutual fund to invest in the universe of mutual funds. At Scripbox, we use our proprietary algorithm to rank mutual funds and pick only the best ones to suit your profile.
We all heard the saying do not put all the eggs in one basket. It applies to investing as well. As beginners, one must understand that investing across sectors, market capitalization, and several asset classes is important. A diversified portfolio has lower risk when compared to a concentrated portfolio.
Set an investment amount based on above per scheme
The next step in the investment journey is to set an amount for investment. The amount is usually determined by the worth of the goal one wants to achieve and how much time they want to achieve it in. Scripbox calculates the amount of investment based on the goal. It gives you an option to invest in lump sum or regular monthly SIP installments.
Decide on SIP vs. Lumpsum
Next, one has to decide whether then have to invest through a lump sum or SIP route. Based on the availability of funds, one can choose to make a regular investment through SIP or one-time investment through lumpsum.
Select the mode of investment
One can invest in mutual funds in multiple ways. Few of the available modes of investment are fund houses, independent financial advisors, registrar and transfer agents, and FINTECH investment platforms.
KYC and net banking
Before investing in mutual funds, the next step is to verify one’s identity. It is done through KYC (Know Your Customer). Then one has to verify their bank details and invest through net banking.
Advice from professional fund experts
Taking expert advice before investing is very important for beginners. Beginners can approach independent financial advisors to get help with investing in the best mutual funds. FINTECH investment platforms like Scripbox rank funds with their algorithm. They also provide portfolios to investors.
Regular monitor of scheme performance
Once invested in mutual funds, regular monitoring of the investments is necessary. Regular reviewing of the portfolio keeps it healthy to earn significant returns.
Ways to Invest in Mutual Funds?
There are multiple ways to invest in mutual funds. The best platform is the one that helps its investors’ money grow with the right portfolio exposure and periodic rebalancing.
Mutual funds houses
Investors can directly invest through mutual fund houses. They can either visit the AMC branch office (offline) or invest through the official website (online).
Independent Financial Advisors (IFA) and Mutual Fund Distributors (MFD)
IFAs and MFDs are individuals that help investors invest in mutual funds. AMFI and SEBI certifies them. IFAs offer expert advice to investors and regularly monitor the portfolio.
Registrar and Transfer Agents (R&T Agent)
Registrar and transfer agents are the institutions that register and maintain detailed records of the transactions of investors for the convenience of mutual fund houses, such as Computer Age Management Services (CAMS), Karvy, etc.
Investor Service Centres (ISC)
Investor Service Centres are official points of acceptance of transactions. For example, CAMS is an investor service centre. An investor can submit their documents at CAMS and invest in a fund.
In addition to shares, using the DEMAT account, an investor can also buy mutual funds.
MF Utility (MFU) is an innovative Shared Services. The platform acts as a Transaction Aggregation Portal through which an investor can transact in multiple schemes across Mutual Funds using a single form/payment.
Investors can invest in mutual funds through recognized stock exchanges. This allows them to by-pass brokers and agents. For this, investors have to complete one-time registration with NSE or BSE.
FINTECH investment platforms
FINTECH investment platforms are online portals that help investors invest in mutual funds. These platforms have made expert advised investments easy and affordable for a common man. One such platform is Scripbox. Scripbox uses an algorithm to shortlist mutual funds. Scripbox’s algorithm sets it apart from its competitors. Its fund selection helps investors in growing their money and meeting life goals. Investments through Scripbox are easy to make and hassle-free. The entire process is online and can be done at the investor’s convenience.
How to Invest in a Mutual Fund with Scripbox?
With Scripbox, investing in mutual funds is very easy. Scripbox’s mutual fund recommendations are backed scientifically and algorithmically. It guides investors to:
- Set the right financial goal.
- Choose the best mutual funds.
- Invest easily with a 100% paperless process.
- And provides annual reviews, automated SIPs, and more.
Investing and forgetting doesn’t help in achieving the goal. Scripbox offers:
- Comprehensive planning: Using the tools, investors can estimate their goals and create a personalized financial plan.
- Choose investment style: Investors can choose how they want their investments to grow – balancing growth and risk – and change it along the way.
- Tracks goal progress: Investors will have a real-time view of their goal progress.
- They guide the path to reduce risk: Scripbox suggests moving to lower-risk investments as your goal approaches.
Step by Step Guide to Invest with Scripbox
Here’s a step by step guide to starting investments with Scripbox:
Sign in to your account from here
- Create a New Plan
Select the plan that suits your financial goal
- Start Investing
Click the START INVESTING action
- Choose among the best recommended mutual funds.
Set your investment mode, recommended funds and amount
- Invest through Net Banking or UPI
Input your payment details and submit them. Or you can schedule your investment for a future date.
Additionally, Scripbox also offers help to investors finding it difficult to invest. The ‘Schedule a Call’ feature allows investors to interact with the team and clear their ambiguities. Investors can also call to get help from an expert on their toll-free number at 1800-102-1265.
How to choose between SIP and lumpsum?
SIP and lumpsum are two different ways of investing in mutual funds. Systematic Investment Plan (SIP) is an investment option that allows investors to invest a fixed sum regularly. On the other hand, lumpsum investment is when investors invest an amount just one time.
A regular income person can choose to invest in SIP. This reduces the burden to invest a lump sum amount at once. For a person investing in equity funds and looking for a long-term investment, SIP is highly recommended. Also, SIP investing works well in a falling market. This is because the investor can accumulate a large number of units when the price is low. The returns will be affected positively once the markets pick up the pace. There is no right time to invest through SIP. Let the market be at an all-time high or low. It will not affect SIP investors. This is because it assumed that SIP investors invest for a long time (5-6 years minimum). Experts recommend investing through SIP for the long-term. As investing throughout an entire business cycle is beneficial for the investors, and they can reap significant benefits.
Lumpsum investing suits investors who want to invest in a short-term in debt mutual funds or who have the surplus available., A lumpsum route or SIP route can be used to invest in debt mutual funds..
So does that mean one cannot invest in equity funds through lump sum? Well, certainly not. One can invest in equity mutual funds through a lump sum investment. Any form of windfall gains, profit from the sale of an asset or any surplus cash available can be invested in the market to earn a return. Even salaried individuals can invest through a lump sum when they get a year-end bonus or festival bonus.
Why invest in Mutual Funds?
Mutual funds are professionally managed investment options. Mutual fund investments invest in different asset classes and earn favorable returns for investors.
Professional fund managers manage Mutual Funds. The fund manager and his team of researchers continuously monitor the portfolio. This helps in maintaining the investment objective of the fund and offer good returns.
The very nature of Mutual funds is to invest in a variety of stocks. They invest across different asset classes too. This exposure to multiple assets helps in diversifying the risk. When compared to Equity stock investment, mutual funds offer good diversification and minimize risk.
Buying equities can be costly. While purchasing a MF unit can be cheaper. Investors can invest either through lump sum or SIP. The minimum investment in a MF can be as low as INR 500.
Benchmark beating returns: Since expert fund managers manage MFs, the top performers offer benchmark beating returns to investors. The fund management team constantly strives to outperform the benchmark to fetch better returns.
Easy and convenient
One can invest in MFs by sitting at home. With all the automation in place, MF investments have become hassle-free and convenient. The Fintech investment platforms have made it possible with just a single click.
MFs allow investors to opt for SIPs to invest small amounts regularly. SIPs create a sense of discipline in investors. These small saving done for the long term helps investors achieve their life goals easily.
Mutual funds offer tax saving option too. The Equity Linked Savings Scheme (ELSS) qualifies under Section 80 C of the Income Tax Act for tax exemption up to INR 1,50,000. ELSS is the only type of mutual fund that offers a tax saving option. Also, ELSS is the only type of mutual fund that has a 3-year lock-in period. Additionally, ELSS is one of the best tax saving options available that offer favorable returns with the least lock-in period.
Investing in mutual funds isn’t just choosing the fund to invest. Before even investing, one needs to have a clear understanding of their goals, income, and risk. Based on these, choosing a fund to invest becomes easy. Investing in mutual funds will help earn significant returns on the money, which is otherwise left idle. Start your investing journey if you haven’t already. Happy investing!