7 Easy Ways to Invest in Mutual Funds

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Mutual funds are a popular investment avenue where even beginners can easily invest their funds. Mutual funds offer a wide choice of investment options for investors with different objectives and risk appetites. They are a smart way to grow and inflation-proof your money. 

Read on to get an easy guide on how to invest in mutual funds in India.

What are mutual funds?

A Mutual fund is a scheme where money is pooled from many investors, managed, and invested in profitable avenues by professional fund managers. The fund manager prepares the most profitable portfolio by mixing up shares, debts, hybrids, derivatives, etc. to ensure the maximum possible returns. The proceeds of such investments are then passed over to the investors.

There are different types of mutual fund investments: equity mutual funds, debt mutual funds, tax saving mutual funds, fixed maturity funds, liquid mutual funds, etc. An investor can invest as low as Rs. 500 as a beginner in mutual funds. There are so many mutual fund schemes that finding the right one may be difficult without the right guidance. Some best performing mutual funds in India, along with their current rate of three-year annualized returns, are:

Mutual Funds3 Year Return
SBI Small And Midcap Fund26.20%
Motilal Oswal NASDAQ 100 ETF25.83%
Parag Parikh Long Term Equity25.43%
Mirae Asset Emerging Bluechip21.02%
ICICI Prudential Equity and Debt Fund19.33%
Axis Long Term Equity Fund Direct-Growth16.10%
HDFC Flexi Cap Fund – Direct Plan-Growth16%
L&T Midcap Fund Growth14.49%
Sundaram Select Midcap Fund14.36%
Nippon India Large Cap Fund11.8%

How to invest in mutual funds?

To ensure the selection of the best mutual funds in India, various factors must be considered before initiating the investment process:

  1. Should I invest online or offline? Although mutual funds can be purchased offline by visiting banks or agencies, most investors prefer the online mode. Initially, mutual fund investments were made online through individual bank apps. However, there are numerous mutual fund apps using which one can easily invest within minutes on their mobile phones. Before investing online, one has to clear their KYC and other details, such as PAN number, bank account details, etc. Some popular mutual fund apps are Groww, Zerodha, etc.
  2. Should I invest directly or through a financial intermediary? Investors have the option to visit each mutual fund website individually or invest through mutual funds intermediaries like HDFC, AXIS, etc. where most of the mutual funds are listed. While using intermediaries provides more choice and saves time, a commission is charged.
  3. Should I invest in growth funds or dividend funds? In the case of dividend funds, one can have a regular income in dividend pay-outs on shares invested through mutual funds. On the other hand, in the case of growth funds, dividends are automatically added to investments and capital appreciation is the main source of return.
  4. Should I invest in a lump sum or SIP funds? In the case of SIP funds, one invests a fixed amount per month, whereas, in a lump sum, one invests the entire desired amount in one go. SIP funds are more suitable for salaried individuals with a fixed monthly income.
  5. Should I look for high returns with high risk or low returns with low risk? As risk and returns share an inverse relationship, investors must determine if they are willing to face high risk while looking for high returns. The expected returns can be calculated using a mutual fund calculator. 

Ways to Invest in Mutual Funds

The following are seven easy ways through which one can go for mutual fund investment:

  1. Mutual fund distributor: Several mutual fund distributors registered with the Association of Mutual Funds in India (AMFI) provide mutual fund investment services without any additional charges. Such distributors collect commissions from the fund houses. However, the costs of mutual fund units are higher than units purchased directly.
  2. Direct investment: Mutual fund units can also be purchased directly from the individual mutual fund’s website or by visiting their office premises. Investors are usually required to submit a KYC before opening an account.
  3. SEBI registered advisors: There are SEBI registered advisors called the Registered Investment Advisors (RIA) who help with mutual fund investment in return for a fee.
  4. Agents: Another easy way of mutual fund investment is through Registrars and Transfer Agents (RTAs). Such agents enable you to invest in both direct and regular plans.
  5. Stockbrokers: Stockbrokers also offer regular plans to prospective mutual fund investors in addition to regular trading and DEMAT services.
  6. Banks: Most banks also offer mutual fund services. However, investors must open an account with the bank (if not an existing account holder) and submit KYC documents before investing.
  7. Online: There are numerous apps and websites that provide mutual fund services that are easy to use. Usually, a fee is charged by such portals for their service.

To Sum it up

Mutual funds have pros and cons that must be carefully weighed before investing. Since there are many schemes available and ways of investing in the market, investors must do their homework to reap the benefits of mutual funds.

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