Investing in mutual funds has become popular choice in the past few months. As the investment is done in several sectors at the same time, one bad performing sector can be compensated with the better performing sector.
There was a time when mutual fund investment was simple but now it has become complex with many additional factors. An investor can understand Indian companies in the complex environment but it is time consuming. Mutual funds provide an option to invest even during such complexities.
Let us take an example here.
ABC equity fund invests in 30 different companies in a sector. The chances of the shares going down at the same time are unlikely unless there is a huge disaster in the economy. If the bank A goes down, then B bank can go up and compensate for loss made by bank A. If the whole banking sector goes down, then the IT sector can come up and reverse the loss.
When investing in mutual funds, one must first get their KYC (Know Your Customer) verified. The forms are available in all the fund offices. A person can contact a mutual fund advisor also to get the KYC form. The KYC form takes a few days to verify. Once that is done, contact your advisor and fill the form of mutual fund. The paperwork is now in place. The form can be downloaded from http://www.amfiindia.com/know-your-customer.
After the KYC is verified, you can start investing in mutual funds. It can also be used for other investments also. Hence, one does not have to fill many KYC forms. A person can buy
The next question comes in of the mode of investment. A person can invest with lump sum amount or SIP (Systematic Investment Plan). So how does SIP work? With SIP one can invest a fixed amount each month when investing in mutual fund. This continues until you plan to stop investing. The major advantage is that it saves you from market fluctuations.
Mutual funds no doubt perform better and give better returns than the saving bank account. Although their returns are subject to market fluctuations, interest rate change, and macroeconomic factors. The money deposited in the bank could give a certain value after a number of years. But with mutual fund it is not so. An investor can invest for better returns but at the same time should be aware of the mutual fund value from time to time.
Once the paperwork gets completed, the investor can use the services of a financial company or a bank to start investment. A person can also walk into the office of Mutual Fund Company or the office of Registrar & Transfer Agents.
The investor should carry the filled application form, KYC number, and payment instrument. This could be either cheque or demand draft. The mutual fund company will then allot a folio number which is the account number held by the investor.
The KYC formalities should be completed before investing in mutual funds. Before investing, the investor should know that not all mutual funds allow investors to invest online. To invest online, the client should visit the website of the mutual fund company and complete the registration online. Once the application is completed, you will be allotted a login name and password through which transactions can be done.
Most of us are not qualified to apply all kinds of theories for portfolio structure to reduce the level of risk. Hence, we would be better off with a fund manager who understands the small things of investment.
The fund value is calculated on the NAV- Net Asset Value at the end of the day by the Asset Management Company (AMC). They charge an annual fee to cover their salaries, brokerage, administration and advertising costs. The larger the investment, lower are the cost as per thumb rule.
The AMC might also charge loads, which are sales charges incurred by the company in the form of distribution costs. Hence, one should read everything in the portfolio before making a commitment.
Now, the biggest question, how to invest in mutual funds online? What are the tips and tricks involved when investing in mutual funds in India? Below are some of them.
An investor should understand the kind of portfolio they need before investing in mutual funds. It should be a healthy mix of high and low risk instruments. For example, if you are 30 years old, you should have 30% of funds allocated towards debt instruments. The younger you are the more you can invest in equities and high risk funds.
Once the asset allocation is done, you should focus on shortlisting the types of funds you want to invest in. This should be decided on the ultimate financial goal. The more money one needs, the more risk factors should one undertake. Also, know about the time limit of investing in mutual funds and their risk profiles which depends on personal outlook.
When comparing funds, look at the history of the fund by studying the pattern and checking performance online. Check out the top 5 fund in the class you wish to invest into. These points will help you make a better decision and help you define your portfolio. In general, you should think of investing in 20 different assets.
The investors should keep a track of the investments. The task is not completed after approving the portfolio. You can keep track online, through newsletters or newspapers. Today, the mobile apps also provide all the date needed and will help you keep a track of all your investments.
Mutual funds provide the right amount of transparency, flexibility, and tax benefits during investment. In addition, the fund managers are always there to support and guide you whenever needed.