Posted on 2nd Jul 2018
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Mutual Funds investment is considered as 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 pool together to invest across different asset class by fund manager. It is much easier way of investment as compared to invest in individual shares in 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 put 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).
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:
Mutual fund investment can be done through following channels:
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 etc serves as a distributor for Mutual Fund Investment. They provide single view of your portfolio i.e Equity, Currency, Mutual funds, commodities, bonds etc. All mutual funds are debited in 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.
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. However to provide this service Zerodha will charge a subscription fee of Rs 50 per month above MF investment value of Rs 25,000. 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.
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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 KYC process. You will get your login details after completing KYC process and once your account is setup you can start transferring fund directly to your mutual funds AMC’s account and start investing. You can opt regular as well as direct plans.
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 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 are providing services in direct plan only with monthly fees.
KYC forms are available on the websites of AMCs, AMFI and KYC agencies. You may also approach your distributor or broker for KYC forms.
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.
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.
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
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
In terms of liquidity, mutual funds can be classified broadly in two categories. Fund management principles will be same in both the categories.
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.
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.
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.
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.
When you sell a mutual fund, exit load can be applied for certain schemes. It can be as high as 1% for some schemes.