If you are a retail investor and want to invest in stocks but do not have knowledge of the stock market; Mutual Fund (MF) is perfect for you. A Mutual Fund collects money from investors and invests in stocks, bonds, government securities and other avenues to generate a profit for investors. Investment in shares and investment in a mutual fund is different. We can understand like this; if you go to a restaurant, you have two choices. One is, you can choose your meal from the menu (La Carte) or you can choose Thali (full meal). So Thali is a Mutual Fund which has everything and La Carte means you are investing in a particular company’s shares. A thali makes the choice easy where you save time, also save some money and you are getting a lot of stuff.
Mutual funds are managed by Asset Management Companies (AMCs) and the professionals who study the markets and pick companies to invest to produce capital gains are called Fund Managers. Each AMC will typically have several mutual fund schemes. As a Mutual Fund investor, AMCs assigned mutual fund units which indicate your contribution to a particular scheme and that units purchased against NAV. The Net Asset Value (NAV), or price of a fund, is calculated at the end of each trading day by dividing the number of the fund’s outstanding shares by the total value of the securities in the portfolio. The NAV changes each day based on the value at the market close of the individual securities held by the fund.
In the last few years, we have seen tremendous growth in the MF industry. The total size of the mutual fund industry in India crossed ₹ 23 Lakh Crore in 2018 and this is just because of awareness about MF.
Why Mutual Fund?
We should understand why do people buy a mutual fund, what are the reason to buy a mutual fund and what is the benefit to choose a mutual fund? Here are some points where we came to know the importance of mutual fund.
Liquidity: People can sell and buy mutual fund any time but within the business day. It means there is no time clause to hold the units. You are free to play with your units.
Diversification: Mutual fund provides you the facility where you can hold a bunch of many stocks or bonds. It helps the investors to lower the risk if one company fails.
Professional Management: Your fund is taken care of by a professional management team. They do the research for you and select the best one and monitor the performance.
Affordability: A mutual fund is affordable as its expense ratio is very less; around 1.5% to 2.5% which is your fund manager’s fees and some administration charges.
Transparency and Secured: Mutual funds are regulated by the Securities and Exchange Board of India (SEBI). If you have any query, you can directly contact with SEBI as all the mutual fund in India working under their guidelines.
How do beginners invest in mutual funds?
It is good for you if you start investing in a mutual fund at an early age. Although it is good to invest in a mutual fund at any age because this is the best investment without any risk and any tension because someone is taking care of my investment. But it doesn’t mean that you close your eyes and depends on your fund manager 100%. Always keep your eyes on your investment.
If you are planning to invest in mutual funds, Systematic Investment Plan (SIP) is the best way to invest. A SIP is a facility offered by mutual funds to the investors to invest a fixed amount of money at pre-defined intervals in the selected mutual fund scheme. Pre-defined SIP intervals can be on a weekly/monthly/quarterly/semi-annually or annual basis and the fixed amount could be any but minimum ₹500.
Create a portfolio
The first step towards investing in a mutual fund is to open your account with the fund house and complete your KYC requirement. Know Your Customer (KYC) is must to invest in mutual funds. You will have to submit an identity proof, address proof, and a photograph. You should also confirm your physical existence through an In-Person Verification or (IPV).
You can complete all these requirements electronically also through eKYC. Most fund houses started providing this facility through their website. You simply have to click on the ekyc link and follow the steps. After submitting all your personal information, you need to upload a scanned copy of all your documents. For example, your PAN (Permanent Account Number) card, ID Proof, Address proof, and your photo and your bank account detail. Once you have registered with the fund house, now you can directly invest online. Just login with your ID, select mutual fund scheme, enter the amount which you want to invest, chose SIP date, select SIP interval and submit your request; that’s it. Now you can enjoy with your investment as a professional team will look after your investment.