Investing in mutual funds has become more accessible than ever, thanks to the rise of online platforms. If you are looking to grow your wealth and secure your financial future, investing in mutual funds online is a smart and convenient option. In this blog, we will tell you about the steps you can take to quickly start investing in mutual funds.
Understanding Mutual Funds
Before delving into the investment process, let's provide beginners with an easy definition of mutual funds. Mutual funds are a type of investment product offered by mutual fund houses. Fund managers are the individuals responsible for managing investments in mutual funds. These professional fund managers use the money from multiple investors to buy and manage a diversified portfolio of stocks, bonds, or other securities. A professional fund manager oversees the fund, aiming to achieve the best possible returns for investors.
Types of Mutual Funds
-
Equity Funds
As the name suggests, these funds primarily invest in stocks. The equity mutual funds usually have higher returns than other types of funds, but they also come with higher risks.
-
Debt Funds
These funds invest in fixed-income products like bonds from corporate or government sources. They are less risky but offer moderate returns.
-
Balanced/Hybrid Funds
The underlying assets of these funds consist of both equity and debt products, with the fund manager pre-defining the percentage of each. Therefore, these funds aid in maintaining a balance between risk and returns. These funds are great for investors as they help you to sail through both high and low markets, making the portfolio less volatile with decent returns.
-
Index Funds
These funds closely follow a specific index, such as the Nifty 50 or S&P 500, and replicate the same stock mix as the index. They help to diversify a portfolio at a lower cost.
-
Fund of Funds
These new types of mutual funds enable investors to invest in multiple mutual funds with limited resources. The fund houses gather the investor's money and allocate it to a variety of mutual funds, including hedge funds. These mutual funds can invest in both national and international mutual funds with an aim of yielding higher returns for the investors.
Benefits of Investing in Mutual Funds
-
Diversification
As the name suggests, these funds primarily invest in stocks. The equity mutual funds usually have higher returns than other types of funds, but they also come with higher risks.
-
Professional Management
You get an expert fund manager to handle your investments without paying much for it.
Liquidity
Mutual funds give you the benefit of immediate liquidity.Affordability
You can start investing with a small amount.
How can you start investing online in mutual funds?
Before you start investing in mutual funds, it is important to know why you are starting, how much you will be investing, and the risk involved.
-
Set Clear Financial Goals
It's crucial to clearly identify and understand your motivation for investing in mutual funds. Is it to park some additional cash that you do not need in the near future, or is it to build a portfolio for a neat term expense or planning long term for your marriage, kids, or for your gig or retirement? With each goal and your life stage, the choice of fund will differ. Seek professional advice to select the right fund for you.
-
Assess Your Risk Appetite
A financial advisor can help you gauge your risk appetite based on your income and priorities in life, but it is also important to considering your personality and thought process to be aware of the risk you are willing to take. Younger investors might opt for high-risk, high-return equity funds; people in middle age, depending on the liabilities and career path, may work on a healthy mix of both equity and debt funds, while those nearing retirement might prefer safer debt funds.
-
Complete KYC Requirement
Know Your Customer (KYC) is a mandatory verification process. You'll need to provide:
- Proof of Identity: A PAN card or any other national ID is acceptable.
- Proof of Address: Aadhaar card, voter card, utility bills, or bank statement
-
Choose a Reliable Provider/Distributor
To start investing, you can directly invest in mutual funds by reaching out to the fund house on their website. Most of the mutual fund houses provide a simple application platform on which you can register and fill in the form with your KYC details. After shortlisting the funds, you can transfer the amount online through net banking or UPI and start investing. This typically takes a few minutes, and after payment, the acknowledgement and confirmation can take 3–4 working days to appear in your account.
In case you do not want to go for direct investment, you can reach out to your financial advisor, who can invest the amount for you through your existing account. The advantage of this process is you can keep all your mutual fund investments in one place and have a more consolidated view of your portfolio. Managing multiple mutual funds from different houses can become challenging over time. Also, with the distributor, you will have the advantage of better screening and selecting the fund.
-
Monitor your investment
Once you have invested, all you have to do is monitor it and re-evaluate it in regular periods depending on the fund you have selected and the tenure for which you are planning to stay invested. In case you want to rejig your portfolio, your financial advisor can help you with that.
Investing in mutual funds online is a quite simple option that offers numerous benefits, including convenience, professional management, and the potential for significant returns. By following the steps outlined in this blog, you are well on your way to building a robust investment portfolio. Start today and take control of your financial future.
Happy Investing.