A mutual fund is an investment vehicle that pools money from many investors to buy a diversified portfolio of financial securities. Most mutual funds have professional managers to oversee operations and ensure that they meet specific financial goals.
Investing in a mutual fund allows you to own a variety of securities through a single investment. As a result, most beginners often prefer this method because it is simple, accessible, and does not require in-depth knowledge of the markets.
If you are unsure of how to invest in a mutual fund, this extensive guide can help you understand the steps in detail.
Things to Know Before Investing in a Mutual Fund
Before we look at how to invest in a mutual fund online and offline, let us quickly look at a few things you must know before you begin your investment journey.
Investment Goal
Firstly, you must define what you want to achieve by investing in a mutual fund. Whether you wish to purchase a house or build a corpus for retirement, having a clear objective in mind helps you pick a suitable fund.
Time Horizon
The investment duration also dictates the type of fund you should choose. For example, short-term goals require stable funds, while long-term goals allow you to invest in more risky funds that grow your wealth through market cycles.
Risk Tolerance
Another factor to consider before investing in mutual funds is risk tolerance. Every investor has a different comfort level, and you must align your choices with your ability to manage risk.
Discipline
Investing regularly is the key to creating wealth over time. It is crucial to stay committed to your investment plan even when the market is volatile to ensure you meet your targets.
How to Invest in a Mutual Fund?
Want to know how to invest in a mutual fund? Here is a quick overview of the overall process involved.
Step 1: Complete KYC
Complete the KYC process by submitting your identity and address proofs to a stockbroker or Asset Management Company (AMC). The Know Your Customer (KYC) process is a mandatory legal requirement that you must fulfill before you can start investing.
Step 2: Choose the Right Fund
Select a scheme that aligns with your financial goals, risk appetite, and investment horizon. Thoroughly research the various categories to find a mutual fund that fits your specific investment needs.
Step 3: Decide SIP or Lump Sum
Choose whether you want to invest a large amount (lump sum) at once or set up a Systematic Investment Plan (SIP).
Step 4: Make the Investment
Transfer your investment amount to the fund house or your stockbroker’s trading account. The money that you transfer is used to purchase the units of your chosen mutual fund.
Step 5: Track and Review
Finally, monitor your mutual fund portfolio regularly to ensure it stays on track. Periodic reviews help you decide if you need to make changes based on your evolving life goals.
How to Invest in a Mutual Fund Online?
Learning how to invest in a mutual fund online helps you save time and effort. It also allows you to manage your money with a few simple clicks. The step-by-step process you need to follow is listed below.
Step 1: Complete Online KYC
Complete your KYC verification online using your Aadhaar. The digital KYC process is quick and eliminates the need for you to visit a physical office for identity checks.
Step 2: Select Fund Category
Browse through the various mutual fund categories, such as equity, debt, or hybrid funds. Remember to select a fund that matches your investment duration and risk profile.
Step 3: Choose SIP or Lump Sum
Select the lump sum investment mode if you plan to invest a large sum at once. If you are comfortable with small, regular investments, select SIP instead. In the case of SIP, choose the investment frequency, duration, and amount of investment.
Step 4: Make Payment Digitally
Transfer funds securely through net banking, UPI, or debit cards. In the case of SIP, you may be asked to set up a standing instruction to automate your monthly investments. Once you have made the payment digitally, your capital will be used to purchase units of your desired mutual fund.
Step 5: Track Investments Online
Your mutual fund investments and their performance can be viewed online in real time through mobile applications or websites.
Investing in mutual funds online is faster because it offers instant processing without any delays. You enjoy a paperless experience that saves time and reduces clutter. Furthermore, the high level of transparency allows you to see all costs and performance data clearly at any time.
How to Invest in a Mutual Fund Offline?
While digital methods are popular, many people still value the traditional approach. Here is the step-by-step process on how to invest in a mutual fund offline.
Step 1: Visit the Distributor or AMC
Visit the nearest branch of an Asset Management Company or a registered distributor.
Step 2: Fill Physical Forms
Complete the mutual fund application and KYC forms by hand. Ensure all your details are accurate to avoid any processing delays or rejections by the fund house.
Step 3: Submit Documents
Submit the filled-out forms along with physical copies of your PAN card, Aadhaar, and photographs. The fund house representative will verify these documents against your originals before approving your KYC.
Step 4: Choose Investment Mode
Remember to specify the investment mode on the mutual fund application form. A lump sum investment or Systematic Investment Plan (SIP) determines how your money will be collected and invested.
Step 5: Make Payment
Submit a cheque or a demand draft along with your application form. The official will provide a physical acknowledgement slip, which you should keep as proof of your transaction.
Why Some Investors Still Prefer Offline Investment?
Some investors are either not tech-savvy or are simply more comfortable with offline processes. In such cases, this route of investing in a mutual fund offline makes sense.
Online vs. Offline Mutual Fund Investment
Now that you know how to invest in a mutual fund, let us compare both online and offline methods across different factors.
Particulars | Online Mutual Fund Investment | Offline Mutual Fund Investment |
Convenience | Can invest and access your portfolio from anywhere and at anytime | Requires you to physically travel to the AMC or distributor’s office |
Cost Awareness | More cost-effective as it provides access to direct plans, which have lower costs | Less cost-effective as it mostly provides access to regular plans, which have higher costs |
Speed | Instant KYC verification and processing of transactions | The process takes more time since everything is manual |
Control | Full control over your mutual fund portfolio | Reliance on an intermediary to process your requests |
Support | Assistance is through automated chatbots or email helpdesks | Personalised face-to-face support and expert advice from a human consultant |
SIP vs. Lump Sum: Which Is Better for You?
If you are wondering which mutual fund investment mode to opt for, then this quick guide can help you pick the right option.
What is an SIP?
A Systematic Investment Plan (SIP) allows you to invest a specific amount into a mutual fund at recurring intervals of your choice.
What is a Lump Sum Investment?
A lump sum investment involves investing a large single amount of money into a scheme at once.
Who Should Choose SIP?
Investing via SIP is ideal if you earn a monthly salary and want to build a disciplined habit without timing the market.
Who Should Choose a Lump Sum Investment?
Investing a lump sum amount is ideal if you have surplus cash that you wish to invest immediately.
Common Mistakes to Avoid While Investing in Mutual Funds
Many beginners fail to reach their financial targets because they make avoidable errors during their mutual fund investment journey. Let us explore some of these mistakes.
- Investing in mutual funds without a proper goal in mind can make it challenging to stay committed.
- Following unverified tips blindly can lead to losses. Avoid taking advice from random sources without performing your own research into the fund's performance.
- Ignoring risk profile will lead to investing in mutual funds that do not match your personal tolerance for loss and may even prevent you from achieving your goals.
- Stopping SIP when markets fall prevents you from buying more units at lower prices and stops you from benefiting from rupee cost averaging.
- Not reviewing your mutual fund portfolio at regular intervals can lead to staying invested in underperforming funds for a long time.
How to Track and Review Mutual Fund Investments?
Reviewing your mutual fund investments periodically is very important. It allows you to see if your fund is still meeting your objectives or if you need to switch to a different scheme.
When reviewing your mutual fund’s performance, you must check its annualised returns against the benchmark index. The fund must have outperformed the benchmark index. Also, ensure it remains consistent over several years and check if the returns are sufficient to reach your planned goals.
Ideally, a detailed review of your fund must be done every six months or at least once a year to stay on top of your financial progress.
Conclusion: Choosing the Right Way to Invest
Now that you know how to invest in a mutual fund online and offline, you can begin your wealth creation journey right away. Investing online is faster, transparent, and more convenient. However, if you are not tech-savvy, you may choose to invest offline. Irrespective of how you invest, always stay disciplined. Remember, mutual funds are a long-term wealth creation tool that requires you to remain invested across various market cycles.
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