A Guide to Investing in Mutual Funds in India in 2020

If you are a new investor, selecting a mutual fund that suits your financial profile and meets your expectations can be confusing and intimidating. This post offers a quick guide to buying mutual funds in India in 2020.

For most of the amateur investors who don't have much knowledge about how the stocks market works, Mutual Funds (MF) offer a defensive investment path. Instead of investing directly in stocks, when you invest in a mutual fund, a financial expert or fund manager chooses the stocks for you.

Despite being a low-cost, tax-saving, and simple investment tool, mutual funds have not been able to reach their full potential as the preferred investment medium. With different options to choose from, if you find them confusing, follow this quick guide on how to buy mutual funds.

Stage 1: Selecting a Mutual Fund

• Know Your Requirements:

  Since every mutual fund has its objectives, you must select one that matches your financial goals and risk profiles. To achieve this, you must know your short-term and long-term financial goals and the risk you are willing to take to accomplish them. To realise your long-term and short-term goals, you must follow different investment schemes.

• Know Your Mutual Fund:

  Once you are aware of your requirements, you must understand your Mutual Fund as well. A quick look at the fund's history gives you an idea about its performance. Analyse the financial ratios and the average return on investment over the last couple of years while considering different funds. All leading financial experts advise on keeping a diversified portfolio of mutual funds for reaching your financial goals.

• Know Your Fund Manager:

  Unlike stocks, a fund manager ultimately decides where your investment goes in Mutual Funds. Therefore, you must check the performance of the fund manager and the fund management house. Ensure that the firm is credible and shows consistent returns on the investment. Since every fund manager charges a fee, usually in percentage, for managing your portfolio, make sure that you take this factor into account as well.

Stage 1: Selecting a Mutual Fund

• Know Your Requirements:

  Since every mutual fund has its objectives, you must select one that matches your financial goals and risk profiles. To achieve this, you must know your short-term and long-term financial goals and the risk you are willing to take to accomplish them. To realise your long-term and short-term goals, you must follow different investment schemes.

• Know Your Mutual Fund:

  Once you are aware of your requirements, you must understand your Mutual Fund as well. A quick look at the fund's history gives you an idea about its performance. Analyse the financial ratios and the average return on investment over the last couple of years while considering different funds. All leading financial experts advise on keeping a diversified portfolio of mutual funds for reaching your financial goals.

• Know Your Fund Manager:

  Unlike stocks, a fund manager ultimately decides where your investment goes in Mutual Funds. Therefore, you must check the performance of the fund manager and the fund management house. Ensure that the firm is credible and shows consistent returns on the investment. Since every fund manager charges a fee, usually in percentage, for managing your portfolio, make sure that you take this factor into account as well.

Stage 2: Buying a Mutual Fund

Now that you are aware of different factors to consider, here is the list of steps to get you started while buying a mutual fund online:

• Step 1: Get the Paperwork Done:

  The first step to investing in mutual funds is to open your bank account and become Know Your Customer (KYC) compliant. KYC is a one-time government regulation process for performing financial transactions. To become KYC compliant, you will need to keep some documents handy with you

  For small investors, the e-KYC is an efficient and quick process.

  1. Valid Address Proof

  2. Valid Identity Proof

  3. PAN Card

  4. Recent Photograph

• Step 2: Select the funds:

  After getting the paperwork done, the next step is to select the mutual funds that meet your requirements. For selecting consider factors like the risk involved, tenure, return on investment, etc.

• Step 3: Buy Mutual Funds:

  Now that you have chosen the mutual funds of your choice, the next step is to go ahead and buy them. For online mutual fund purchase, you can either buy funds directly from the fund management house or invest indirectly through an intermediary. Additionally, you can either go for a lump-sum purchase or invest periodically in a Systematic Investment Plan (SIP).

• Step 4: Monitor Your Mutual Funds:

  After investing in mutual funds, it is time to track its performance. We live in a digital era of quick updates about market fluctuations. However, it is often advisable not to get too excited and make a rash decision while monitoring its performance.

• Step 5: Sell the Mutual Funds:

  Knowing when to sell it is as crucial as selecting which mutual funds to buy. You know it's time to sell a mutual fund if you have achieved your goal, or it continues to fare poorly for a while.

Mutual Fund, if done correctly, offers a simple yet effective investment tool for meeting your financial goals. Understanding your short-term and long-term financial goals and selecting a mutual fund to accomplish them requires knowledge and patience. Hopefully, the steps mentioned above give you a brief idea about buying mutual funds in India in 2020.