How to start Investing in Mutual Fund in India

Mutual Funds investment is considered as a safer investment as compared to investing in individual stocks. Also it is convenient for new investors to start investing in mutual fund where your money and other investor's money is pooled together to invest across different asset class by a fund manager. It is much easier way of investment as compared to investing in individual shares in the stock market. Moreover, you don't have to be an expert nor you need to do technical research on stocks. All you have to do is select a mutual fund scheme, according to your preference for risk, return and liquidity.

The company that puts together a Mutual Fund scheme is called Asset Management Company (AMC). A professional fund manager manages the scheme and performs buying and selling of securities in line with the fund's investment objective. All AMCs are regulated by SEBI and Association of Mutual Funds of India (AMFI).

In this article we have covered brodely-

We are providing in depth review of all mutual funds AMC. Please refer the detail review section.

Benefits of Investing in Mutual Funds

• Mutual Fund Investment offers a wide range of products across different asset classes suitable for the investment duration of your choice from a day to the year to life long.
• Your money is managed by qualified and experienced professionals who take decisions on investing money after extensive research.
• Mutual Funds allow portfolio diversification across different asset class and within an asset class.
• The easy redemption of mutual funds at prevailing NAV on any business day, at specific interval or at the expiry of the scheme depending on the type of mutual fund.
• You get tax benefits as compared to other type of investments.
• Mutual Fund Scheme offer a great degree of transparency making sure you get informed where your hard money is invested. Every mutual fund has a clear investment objective and performance track record which is disclosed periodically allowing them to compare different schemes easily.
• The mutual fund scheme also discloses the NAV per unit on a regular basis.
• Portfolio scheme published periodically showing details of the amount of money invested in each security, quantity of securities, market value, scheme expenses, the proportion percentage of total portfolio value.
• Investment comfort to invest in more securities with less paper work.
• Regulatory Comfort as SEBI has mandated strict check and reporting of the mutual fund activities.

How to start investing in Mutual Funds?

Mutual fund investment can be done through the following channels:

• Full Service Stock Broker as Mutual Fund Distributor
• With Discount Share Broker like Zerodha
• Direct Mutual Funds with AMCs
• Mutual funds Advisory

Full Service Stock Broker as Mutual Fund Distributor

Most of the full service brokers allow you to invest in Mutual funds with multiple AMCs free of cost in regular plans, but take commission from AMCs. Brokers like ICICIDirect, SBI Securities, ShareKhan, Angel Brokin, Karvy serves as a distributor for Mutual Fund Investment. They provide a single view of your portfolio i.e Equity, Currency, Mutual funds, commodities, bonds etc. All mutual funds are debited to your demat account. They offer research based advisory services also to facilitate the investment process. They do not charge anything from you directly for providing mutual fund investment platform. But they make annual commissions from your investments perpetually from the AMC. Mutual fund distributors take up to 1.5% upfront and 1% every year from your investments. Investment in Mutual Funds with Full service brokers can be done is 2 ways – Online investment via trading platform or by your relationship manager via visiting nearest branch office.

The advantage of investing in mutual funds with full-service broker

• Single view of your portfolio.
• In case you wish to choose funds from multiple AMC’s you don’t have to go through with multiple KYC and paperwork process.
• Supported by financial planners.

The disadvantage of investing in mutual funds with full-service broker

• Need to pay indirect fee/commission as you can’t invest in direct plan.

With Discount Share Broker like Zerodha and 5paisa

Zerodha is providing you a platform called Coin to buy mutual funds online directly from AMC, in that case distributor is not getting any commission from AMC, here Zerodha is a distributor. Direct Mutual Fund investment with Zerodha is free. All your Mutual Funds, stocks, bonds, currencies will stay in Demat Account with Zerodha. So to avail this service, you have to have a demat account with Zerodha.

Zerodha Direct Mutula Fund Investment - Coin Review

5paisa also started providing direct mutual fund investment @Rs 10 per transaction.

The advantage of investing in mutual funds with Zerodha/5paisa

• Invest in direct plans, can save intermediate commission and get more return.
• Single view of portfolio.
• Can invest with multiple AMC’s, No extra paperwork or KYC process.

The disadvantage of investing in mutual funds with Zerodha/5paisa

• We dont see any disadvantage.

Direct Mutual Funds with AMCs

This type of funds is bought directly from AMCs. You do not buy from distributors. These are called Direct Funds. You can invest directly via Mutual Funds AMCs after completing the KYC process. You will get your login details after completing the KYC process and once your account is set up you can start transferring funds directly to your mutual funds AMC's account and start investing. You can opt regular as well as direct plans.

The advantage of investing in mutual funds direct with AMCs

• Invest in Direct plans, can save intermediate commission and get more return.

The disadvantage of investing in mutual funds direct with AMCs

• You have to manage multiple portfolios.
• Have to do more paperwork in terms of KYC process
• Have to take care multiple accounts, user id and passwords

Mutual funds Advisory

Few companies are providing investment in mutual funds only. Companies like www.groww.in or hwww.mutualfundwala.com or http://www.kuvera.in/ serve as an advisory of Mutual Fund and charge commission from AMCs for letting you choose a ready-made portfolio from their platforms and invest in mutual Fund houses that they have tie up with.  All the investment is through paperless and secure process of net-banking.

Few MF advisory is providing services in direct plan only with monthly fees.

The advantage of investing in mutual funds with MF advisory

• Provide ready-made portfolios to choose.
• In case you wish to choose funds from multiple AMC’s you don’t have to go through with multiple KYC and paperwork process.
• Complete online investment – Paperless

The disadvantage of investing in mutual funds with MF advisory

• Need to pay indirect fee/commission as you can’t invest in direct plan.

For investing in Mutual Funds, you need to complete your C-KYC registration. CKYC stands for Central Know Your Customer. Starting Feb 1, 2017 – anyone investing in mutual funds will have to go through CKYC process. CKYC will have a unique KYC identifier – 14-digit KYC Identification Number (KIN) – linked with ID proof, KYC data and documents stored in a digitally secure electronic format.

C-KYC can be done through:

• MF distributor[Broker or Any Banks]
• Mutual fund company (AMC)
• KYC Agencies like CAMS, CRA
• Mutual funds advisory

List of documents needed for CKYC

• Application Form
• PAN Card
• Identity Proof – passport, driver’s license, aadhar card, voter id etc are valid proofs
• Address Proof – passport, driver’s license etc are valid proofs

Where can I get KYC forms?

KYC forms are available on the websites of AMCs, AMFI and KYC agencies. You may also approach your distributor or broker for KYC forms.

Why Central KYC?

KYC (Know your customer) is a SEBI mandated one-time process for all customers who want to invest in mutual funds. Earlier customers had to do different KYC for different purposes opening a bank account, buying insurance, investing in mutual funds etc. but with CKYC, this will have to be done just once.

How does the investor transact in Mutual funds after completing the KRA process?

After completing your KYC process, you will receive KYC Acknowledgement. Investor must attach his KYC Acknowledgement along with the Investment Application Form(s) / Transaction Slip(s) while investing for the first time in a mutual fund.

CAMSKRA

CAMS Investor Services Pvt. Ltd. ( CISPL) , a wholly owned subsidiary of CAMS,  launched CAMS KRA to implement common KYC across SEBI regulated intermediaries.

The CAMS is the KYC registration Agency (KRA) that maintains KYC records of the investors centrally on behalf of capital market intermediaries registered with SEBI. They have 197 customer service center (CSCs) across India. You can approach CAMSKRA near you to get C-KYC done. CAMS KRA also facilitates MF investors to update any changes to their KYC records. Link- www.camskra.com

CVLKRA

CDSL Ventures Limited (CVL), a wholly owned subsidiary of Central Depository Services (India) carries out the KYC procedure on behalf of all Mutual Funds.  CVL through its Points of Service (POS) accepts KYC Application Forms, verify documents and provide the KYC Acknowledgement. The list of POS is usually displayed on the websites of Mutual Funds, CDSL and AMFI. Once the KYC is duly completed in all regards, the investor needs to produce a copy of the acknowledgement when investing for the first time with a Mutual Fund. There is no need to repeat the KYC process individually for each mutual fund. Link- www.cvlkra.com

What are the types of Mutual Fund?

In terms of liquidity, mutual funds can be classified broadly in two categories. Fund management principles will be same in both the categories.

In terms of liquidity

Open ended: Open ended scheme is like a saving bank account. An investor can start investing in open ended mutual fund scheme by investing minimum stipulated amount and opt for further transactions like additional investments, redemption, transfer etc any nunber of times.

Close Ended:  Close ended scheme is like fixed deposit. This type of scheme is less liquid. The money is raised from the investors only once. That’s why, after the offer period, fresh investment cannot be made into the fund. The scheme remains in operation for certain period of time after which it matures and money is returned to the investor.

In terms of buy/sell

Close ended: Close ended funds are listed down the stock exchanges from where they are bought and sold, also the market price of the units of close ended fund are normally offered at  a discount to the prevailing NAV. Close ended funds can only be sold through the stock exchanges before its maturity in the demat format. Redemption of units can be made during specified intervals. Therefore, such funds have relatively low liquidity.

In terms of Investment Objective

Debt Funds or Fixed Income Funds: This scheme invest in fixed income securities such as treasury bills, government securities, bonds and securitized debts.

Equity Funds: Equity funds invest largely in equity shares of companies and other equity related investments.

Hybrid Funds: Hybrid Funds are mixture of debt and equity.

Gold ETF: They are like index funds that invest in gold with an NAV that moves in line with gold prices in the market.

Gold Sector Funds:  Funds are invested in shares of company that are engaged in gold mining and processing. The prices of these shares are closely linked to the profitability and gold reserve of the company.

Commodity  Sector Funds: These funds invests in shares of companies having commodity business such as commodity assets like food crop, fibres, industrial metals, energy products and precious metals.

International Funds: These funds invest your money abroad. They tie up with the foreign fund to transfer money from India fund to this master foreign fund. This fund is then use for any type of international investment.

Domestic Feeder Fund: These funds pre-specify the kind of schemes they will invest in.

Gilt Funds:Gilt Funds are mutual funds that invest only in government bonds (debt). They are good for risk averse and conservative investors who wish to invest indirectly in secure government bonds.

Exchange Traded Funds: ETFs are like mutual funds but traded on stock exchanges and people can buy or sell them like stocks. 

Equity Linked Savings Scheme: Also known as tax saving funds – special mutual funds that are exempt from tax under section 80C.

Dividend Schemes:  Mutual fund schemes that provide regular dividends to its investors instead of putting the profits back in the equity or debt.

In terms of managing the Mutual Fund Schemes

Actively Managed Funds: Gives the fund manager the ability to actively build schemes portfolio based on scheme’s investment objective and endeavors to outperform the benchmark index.

Passively Managed Funds: Passively managed funds endeavors to build a portfolio in a most static manner based on some predefined criteria.

Last updated on 30th Jul 2019

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