How to invest money in Mutual Funds?

You might have heard the term Mutual Funds (MFs) used in context of investment, but did you know what mutual funds are and how they work? A mutual fund pools the money of a large number of investors and is managed by a regulated asset management company (AMC). The money is usually invested in equity shares, bonds or money market instruments, based on the objective of the scheme.

The MF scheme's value (Net Asset Value or NAV) is declared every day. The AMC appoints a fund manager who invests the money based on the investment objective of the scheme. The major types of mutual funds are Equity, Debt and Hybrid. As the names suggest, equity funds invest predominantly in equity shares of company; debt funds invest in debt securities such as bonds, commercial paper, etc.; hybrid funds invest in equity and debt based on a pre-determined ratio.

The best way of investing in a mutual fund is through a Systematic Investment Plan (SIP) where you invest a fixed amount periodically (usually monthly) through an auto debit of your bank account.

You will have to first complete the Know Your Customer (KYC) process which is similar to the one followed while opening a bank account. For your KYC, you will need to submit self-attested copies of the following documents:

• PAN card copy
• Address proof: This can be any one of the following: driving license, passport, ration card, Aadhar card, or you may provide your electricity bill or bank statement showing your address.
• Cancelled Cheque: A cancelled cheque of the account from which you will be investing (whenever you decide to redeem, the amount will be credited to the same account)
• A passport sized photograph

If you are investing in joint names, the above details are required for all joint investors (maximum three).

You will also be required to submit a simple mutual fund account opening form.

Investment by minors: You can invest in the name of your children. Here, you are required to give a third-party declaration form and documents showing the parents' relationship with children such as birth certificate or passport.

You can buy mutual funds either through an intermediary/mutual fund distributor or directly from the mutual fund. There are two ways of investing in mutual funds:

Direct investments: This is a do-it-yourself way. You will have to select the fund and make online investments or visit the mutual fund's office to submit your application. Every fund house now offers a Direct Plan in all schemes where the expense ratio is lower than that of regular plans.

Investing through intermediaries: There are a wide range of intermediaries who help you to select the fund, complete the documentation and make the investment. Most investors in India prefer to invest through intermediaries despite the higher expenses since they receive advise on which funds to invest in.

Banks: The bank in which you have your savings account usually has Relationship Managers who help you with your mutual fund investments. This could be convenient as you have a one-point contact for all your financial needs. Usually your net banking account also has mutual fund investment facility.

Independent Financial Advisors (IFA): Specialists who help you select the funds and also help with your financial planning. They earn their income through commissions from the mutual fund.

Online Portals: As the world of investing is increasingly moving online, a convenient way of investment is through online portals which give you real-time tracking. You can sign up for a service of your choice and start investing in MFs anytime of the day or night.

Regular investments in Mutual Funds is the right way of creating long term wealth. Investing in Mutual funds is easy. Once you open an account, investing could be just a mouse click away.