5 min read • Published 21 Jan 25
How to Invest in Mutual Funds?
Table of Contents
Mutual funds can be a good investment avenue for those looking for relatively risk-free investment avenues. Even though this form of investment also has some form of market risk, prudent allocation and management can easily keep such risks under control.
In the stock markets, one needs a demat account to invest in shares of different companies that are listed. In mutual funds, a demat account is not compulsory.
Let’s first understand the meaning and types of mutual funds before knowing how to invest in mutual funds.
Mutual Funds: Meaning and Explanation
Investors pool money to buy a mutual fund offered by a single company. The collected fund is then further invested across various assets or instruments that include stocks and bonds etc., on recommendations of a fund manager for that portfolio.
The money that is invested through the purchase of stocks, debts, and money market instruments is divided into these assets proportionately and it is distributed to the investors in the form of NAV or Net Asset Value.
Each investor’s investment gets measured in the form of the number of units they buy.
Upon redemption, the number of units an investor holds will be multiplied by that day’s NAV less taxes and other operational costs, if any, to determine the total redemption amount. It will, therefore, be the way to know the investor the exact amount of the sale proceeds of these MF units.
Example: Suppose an investor invests Rs. 5000 lumpsum in a mutual fund at an NAV of Rs. 20 per unit, grabbing a total of 250 units in January 2024. Now, in December 2024, if the NAV rises to Rs. 25; by selling 250 units @ Rs. 25 each, the sale proceeds will amount to Rs. 6250. Thus, the investor gains Rs. 1250 from selling mutual funds; minus any taxes and operational costs, if any levied as per SEBI guidelines.
Types of Mutual Funds
These are three regular categories for investors to diversify their portfolios:
- Equity Funds: These mainly invest in shares and stocks of large companies and in small-cap funds. The performance of equity funds would be on the basis of economic conditions of the country, geopolitical issues, and expertise of fund managers.
- Debt Funds: Based on asset classification, debt funds invest in debt instruments, including Government Bond and Corporate Bond Fund. They tend to generate lower ROI but are quite less volatile compared to an equity fund.
- Hybrid Funds: In hybrid funds, the fund manager invests the pooled money in stocks, bonds and money market instruments.
How to Invest in Mutual Funds?
Option 1: Submit an Offline Application
- Complete the required mutual fund application form.
- Provide a void cheque to confirm your bank account.
- Submit the form to the branch office of the Asset Management Company (AMC) or their designated Investor Service Center or ISC. You can also submit it to the concerned RTA–Registrar and Transfer Agent–managing the scheme.
Option 2: Self-Investment via Provider’s Portal
- Visit the official website of the mutual fund house.
- This is a self-service method for those who prefer autonomy in their financial decisions.
Option 3: Invest Through a Distributor
- Reach out to an AMFI-registered distributor—this could be a bank, broker, or an independent agent.
- Confirm that the distributor has:
- A valid AMFI Registration Number (ARN)
- A relevant Employee Unique Identification Number (EUIN)
- Necessary certifications such as NISM qualifications.
- The distributor will guide you through the process and assist with selecting and investing in schemes.
Option 4: Use the MF Utilities (MFU) Platform
- Sign up for the MFU portal, a centralized platform designed for mutual fund transactions.
- This platform enables you to compare schemes, execute investments, and manage your portfolio efficiently in one place.
- Check the MFU website for step-by-step instructions to get started.
Option 5: Buy Units Through Stock Exchanges
- Use platforms like NSE MFSS or BSE StAR MF to purchase mutual fund units.
- This method requires a demat account, as the units are bought and sold just like shares in the stock market.
KYC: Essential for Every Mutual Fund Investor
If an investor wants to know how to invest in a mutual fund, he or she should understand the basic concept of KYC. Every investor should mandatorily go through the process of KYC (Know Your Customer) before making any MF-related transaction. They have to fill in the KYC form in the prescribed format as mentioned in the offer document or advised by the distributor.
KYC is a customer identification process and is obligatory in the account opening process with any financial institution or carrying out any financial transaction for the first time through that institution. Through the KYC process, the relevant officials scrutinise the investor’s photograph, identity and address proof to ensure that everything is in order and the investor is not offering any false document or information.
How to Invest in Mutual Funds Online?
Step 1: Select an Online Platform
To invest in mutual funds online, investors should sign up on their chosen app using a smartphone or PC.
Step 2: Create Your Profile
By registering with their email ID and mobile number, they can access their profile online. Furthermore, they should also provide details such as their PAN, Aadhaar Number, and address, wherever prompted.
Step 3: Research and Choose a Distributor
After completing the KYC process, customers can select the mutual fund that aligns with their financial objectives.
Before searching for ways to invest in mutual funds online, investors should first choose a distributor.
Step 4: Connect Your Bank Account
Next, they have to link their bank account with the online platform to enable a smooth auto-debit facility. Within a few hours, the requested amount will be used to purchase relevant units at the current NAV. The total cost of the investment will be paid from the linked bank account.
Conclusion
Mutual fund investments can become a stepping stone toward securing the financial future of an individual. It is simple, secure, prompt, and convenient. Anybody can start mutual fund investments online by downloading the app of a mutual fund company or distributor. The article aims to help readers understand how to invest in mutual funds online in India and the initial steps one needs to take before doing so.
However, past performance is not a guarantee for the future course of an offering. Investors should read the policy statements carefully before filling their mutual fund application forms.
Q: Can I buy a mutual fund online?
Yes, investing digitally is simple:
- Register on a trusted app or distributor's website.
- Verify your identity with KYC documents like PAN and Aadhaar.
- Choose the scheme that matches your financial goals.
Q: Can I invest Rs. 1,000 in a mutual fund?
Yes, you can invest as little as Rs. 500 per month in many mutual funds through a Systematic Investment Plan (SIP).
Q: Can I invest Rs. 5,000 in a mutual fund?
Absolutely. You can begin with Rs. 5,000 for a one-time investment. Many schemes also let you add amounts starting from Rs. 1,000 for future contributions. There is no fixed upper limit, giving flexibility to match your financial goals.
Q: How Much Does a Mutual Fund Offer on ROI?
Returns depend on market movements, fund categories, and both domestic and global economic factors.
Q: Do I need a Demat account for mutual funds?
Not necessarily. Mutual funds can be purchased directly via AMCs, apps, or authorized distributors without one. Instead of holding units in a Demat account, you’ll receive a statement of ownership.
