Things to keep in mind before investing in mutual funds

Investing in mutual funds can open a world of opportunities and provide a gateway to potential financial growth. Be it planning for retirement, funding your child’s higher education, or buying a property, mutual fund investments can help you accumulate a substantial corpus, thereby taking you a step closer to your financial goals.
We will guide you through the steps involved in mutual fund investments and equip you with knowledge about the various ways to invest in them.

Factors to consider before investing in mutual funds

Determine your investment goals: Start by identifying your financial objectives. Are you investing for long-term wealth creation, retirement, or a specific purpose? Being clear about your goals will help you choose a suitable scheme.

Understand risk tolerance: Each mutual fund category carries certain risks to it. As an investor, you must evaluate your risk appetite before investing. Aggressive investors may opt for equity funds, while conservative ones may prefer debt or hybrid funds.

SIP or lump-sum investments: Decide if you want to invest in mutual funds through monthly or quarterly Systematic Investment Plans (SIPs) or through a lumpsum amount. You can use an SIP calculator or lumpsum calculator to get the estimated future value of your investment.

Complete your KYC (Know Your Customer): To invest in mutual funds, you must fulfil the KYC requirements mandated by regulatory authorities. This involves submitting relevant documents such as proof of identity, address, and PAN card details. It is a one-time process and ensures compliance with regulations.

How to check your KYC status?

To check your KYC status, you can visit the website of the KRA (KYC registration agency). Enter your PAN card details, or the KYC identification number provided during the KYC registration process. Upon submission, you will receive information about your KYC status and confirmation if your KYC compliance is active. Some prominent KRAs include the Central Depository Services Limited (CDSL) and the National Securities Depository Limited (NSDL)

Ways to invest in mutual funds

There are various ways of investing in mutual funds. Let’s have a look at them:

Through distributors: You can seek the help of a distributor for guidance on fund selection and completing the investment process.

Through online platforms: Numerous online investment platforms provide a convenient and user-friendly way to invest in mutual funds. These platforms offer a wide selection of funds from different AMCs and features like portfolio tracking, performance analysis, and automatic investments.

Through Asset Management Companies (AMCs): All AMCs offer an online platform or a physical branch where investors can directly invest in mutual fund schemes. Investors must follow the instructions provided on the official AMC website/app, fill in all the necessary details, and submit the application to invest.

How do mutual funds work?

Mutual funds are financial instruments that pool money from various investors and invest it in securities like stocks, bonds, gold, and money market instruments to earn a return on the investments. Investors can invest different amounts in mutual funds using a lumpsum or SIP (Systematic Investment Plan) strategy. The Asset Management Company (AMC) then collects the corpus of money, invests, and allows the investors to access professionally managed portfolios comprising equity, bonds, and other securities.

The corpus is managed by experienced fund managers, who use their skills to generate potential capital gains or income for the investors. Depending on the market conditions, fund managers outline the goal of the mutual fund, manage the investment, distribute gains (if any) among the investors, or reinvest them. In addition, each unitholder participates in the profits or losses of the fund in proportion to the number of units they hold.
There are multiple mutual funds which are categorized based on their investment objective, associated risk, and the type of returns they generate.

Final thoughts
Understanding the mutual fund investment procedure requires a blend of careful consideration and strategic decision-making. As you step into mutual funds, remember to assess your investment goals, understand your risk tolerance, and conduct thorough research. Completing the KYC process is essential to comply with regulations and access mutual fund investments. Whether you choose to invest through distributors, online platforms, or directly through AMCs, the key lies in making informed choices aligned with your financial aspirations. So, seize the opportunity, open the door to mutual fund investments, and embark on a journey towards financial growth.

FAQs:

How to invest in mutual funds?

Investment in mutual funds can be done with the help of a distributor, online platforms or by visiting the fund house’s website. However, seeking the help of a distributor can make the process of buying mutual funds simpler.

Should new investors opt for mutual funds?

Yes, mutual funds can be a suitable investment option for novice investors. Also, by staying invested for a longer duration, investors can reap the benefit of compounding, get closer to their financial goals and aim for long-term wealth creation.

Mutual Fund Investments are subject to market risks, read all scheme related documents carefully. This document should not be treated as endorsement of the views/opinions or as an investment advice. This document should not be construed as a research report or a recommendation to buy or sell any security. This document is for information purpose only and should not be construed as a promise on minimum returns or safeguard of capital. This document alone is not sufficient and should not be used for the development or implementation of an investment strategy. The recipient should note and understand that the information provided above may not contain all the material aspects relevant for making an investment decision. Investors are advised to consult their own investment advisor before making any investment decision in light of their risk appetite, investment goals and horizon. This information is subject to change without any prior notice.