A Beginner's Guide To Mutual Funds On 5Paisa

Investing in mutual funds is a great way to make the most of your savings. Mutual funds are ideal for investors who don't have a large amount of capital and are unable to conduct thorough market research. 5paisa offers direct mutual fund investment at ZERO commission, and you can save on the expense ratio by investing in Direct Mutual Funds.

You can invest in mutual funds through 5paisa's Invest App or 5paisa Mobile Trading App. However, if you want to trade in stocks as well, you will need to open a demat account.

1. Complete the Know Your Customer (KYC) process.

2. Visit the website of an Asset Management Company, a registered investment advisor, or a mutual fund distributor.

3. Complete the e-KYC form and submit the necessary documents, including a passport-sized photograph.

4. Complete the in-person verification as mandated by the capital market regulator, SEBI.

5. Select a mutual fund scheme based on your investment horizon, risk appetite, availability of funds, and other important factors.

6. Submit the mutual fund application form and the investment amount.

You can also invest through a mobile application by downloading the 5paisa app, logging in, and choosing a fund to invest in.

Before investing in mutual funds, consider factors such as your risk appetite, investment goals, and the performance of the fund. It is also important to note that mutual funds are intended for long-term investors due to high transaction costs.

How to choose a good mutual fund for investment

Choosing a good mutual fund for investment can be a challenging task, but here are some essential factors to consider:

Investment Objectives and Risk Tolerance:

Clearly define your financial goals and risk appetite before investing. Ask yourself whether you are investing for long-term capital gains or current income. Are you comfortable with higher-risk investments, or do you prefer a more conservative approach? Mutual funds offer different types of funds, such as growth funds, income funds, and balanced funds, each with varying risk levels and investment objectives.

Fund Performance and Manager's Background:

Evaluate the fund's past performance and consistency. Review the fund manager's qualifications and track record. A good fund manager should have a successful history of making prudent investment decisions and navigating market fluctuations.

Expense Ratio and Fees:

Be mindful of the fees associated with mutual funds, as they can significantly impact your returns. Consider both the front-end and back-end load fees, as well as the expense ratio, which is the annual fee charged as a percentage of your assets under management. No-load funds may have higher management expense ratios, so it's important to consider the overall cost structure.

Fund Type and Diversification:

Understand the different types of mutual funds available, such as large-cap funds, small-cap funds, value funds, and growth funds. Diversify your portfolio by investing in multiple mutual funds across different sectors and asset classes. This helps mitigate the risk of underperformance in any single fund and ensures a more stable long-term growth trajectory.

Time Horizon:

Determine how long you plan to hold the mutual fund investment. If you need access to your money within a short period, an aggressive growth fund may not be suitable. Consider target-date funds that adjust their risk level based on your proximity to retirement age.

Management Style:

Mutual funds can be actively or passively managed. Actively managed funds involve fund managers who actively buy and sell securities to outperform a benchmark index, while passively managed funds (index funds) aim to replicate the performance of a specific index. Passively managed funds tend to have lower fees and often outperform actively managed funds over time.

Remember, it's crucial to conduct thorough research and due diligence before investing in any mutual fund. Consider seeking advice from financial advisors or mutual fund specialists to help you make informed decisions.

How to invest in mutual funds through SIP

To invest in mutual funds through a Systematic Investment Plan (SIP), you must first complete your Know Your Customer (KYC) procedure. This involves providing proof of identity, proof of address, and completing a KYC form. You can do this online or by visiting an AMC or RTA office.

Once your KYC is complete, you can register for a SIP. This involves choosing a mutual fund scheme and deciding on the amount and frequency of your investments. The frequency can be daily, weekly, monthly, quarterly, semi-annually, or annually. You will also need to set up an auto-debit from your bank account.

After registering, you can submit your application form online or offline, depending on your fund house. If submitting offline, you will need to physically submit your form and any required documents to the AMC or broker office.

• Set clear investment goals and determine your risk tolerance.
• Choose a mutual fund scheme that aligns with your goals and risk tolerance. Evaluate the fund's past performance, composition, expense ratio, and fund manager's track record.
• Decide on the duration of your investment and use a SIP calculator to estimate your returns.
• Monitor the performance of your mutual funds and consider seeking advice from a financial advisor.
• Remember that mutual funds are intended for long-term investors due to high transaction costs.

How to invest in Mutual Funds through Lumpsum Investment

Lumpsum investment is a method of investing in mutual funds where you invest a large sum of money in one go. This approach can work well when market conditions are favourable, or when you have a substantial amount to invest. However, it also carries risks due to the timing of the investment, which can significantly impact returns.

Steps to Invest

• Set up a direct mutual fund investment plan: You can choose to invest either in person or online with an asset management provider.
• Complete your KYC: Submit a self-attested ID, address proof, and two passport-sized photos to the mutual fund institution.
• Invest online: Log in to an online platform and select your preferred investment strategy. Choose the "One-Time" option and enter the desired amount.

Factors to Consider

• Market Timing: As a lumpsum investor, deciding when to enter the market is crucial. Entering during a favourable period can result in higher returns, but it also exposes you to market volatility.
• Financial Goals: Consider your investment goals and whether the proceeds will be sufficient to achieve them. For example, if investing for a down payment on a car, ensure that the investment aligns with this goal.
• Performance of the Fund: Evaluate the fund's past performance and compare it with the benchmark to assess how it has performed during different market conditions.
• Expense Ratio: Check the expense ratio, as higher costs can eat into your returns over time.
• Exit Load: Be mindful of any fees charged for redeeming your investment within a specified time frame, as this can affect your total returns.
• Risk Tolerance: Lumpsum investments typically carry higher short-term risks. Assess your risk tolerance and ensure it aligns with the chosen investment strategy.
• Time Horizon: Consider your investment period and choose a product that suits your time horizon.
• Tax Implications: Understand the tax treatment of capital gains and dividends from the fund.
• Liquidity: Be aware of the fund's redemption policies, potential lock-in periods, and exit loads.

Remember, lumpsum investments offer the potential for higher returns but also carry higher initial risks. It is important to carefully consider your financial goals, risk tolerance, and market conditions before investing.

How to invest in mutual funds online

Investing in mutual funds involves one of the easiest investment processes, making these investments flexible, transparent, and reliable for investors. There are several ways to invest in mutual funds, including online and offline modes.

Online Mode

To invest in mutual funds online, follow these steps:

• Visit the website of an Asset Management Company (AMC), a registered investment advisor, or a mutual fund distributor.
• Complete the e-KYC form available on the website. You will need to submit self-attested copies of documents, including a passport-sized photograph, proof of identity, and address verification.
• Complete the in-person verification as mandated by the capital market regulator, SEBI.
• Select a mutual fund scheme based on your investment horizon, risk appetite, availability of funds, and other important factors.
• Submit the mutual fund application form and investment amount.

Mobile Application

Alternatively, you can invest in mutual funds through a mobile application:

• Download the application via the App Store or Play Store on your smartphone.
• Log in to the application by creating an account.
• Check the available funds and track their performance.
• Choose a fund and start investing.

Things to Consider

• Risk appetite: Consider your risk tolerance and choose funds that align with your comfort level. For example, debt mutual funds involve lower risk, while equity mutual funds are suitable for those with a higher risk appetite.
• Investment goals: Be clear about your investment goals, such as retirement planning, saving for education, or buying a car. This will help you choose the right type of mutual fund and create a tailored portfolio.
• Diversification: Diversify your portfolio by investing in multiple mutual funds to reduce risk and maintain the value of your investments.
• Systematic Investment Plans (SIPs): Consider investing through SIPs, which allow you to invest a fixed amount at regular intervals. SIPs help you build an investment habit and benefit from rupee-cost averaging, leading to higher long-term returns.
• Know Your Customer (KYC) compliance: Ensure that you have completed the KYC process, as it is mandatory for investing in mutual funds. Provide the required documents, such as a PAN card and address verification.
• Net banking: Enroll for net banking to facilitate mutual fund purchases. It is a safer and more convenient option than using debit cards or checks.

Direct Mutual Funds

Direct mutual funds allow investors to invest directly without involving agents or brokers. By investing through direct plans, investors can save on commissions and fees, resulting in higher returns. However, investors need to do their own research and make investment decisions independently. Direct plans can be accessed through the website of a mutual fund company or other online platforms.

Regular Mutual Funds

Regular mutual funds involve distributors who earn commissions and fees for providing investment services. These expenses are deducted from the investor's returns, leading to a higher expense ratio. Regular plans may be suitable for investors who prefer to seek advice and services from brokers or distributors.

Important Considerations

When investing in mutual funds, it is crucial to consider the following:

• Investment objectives: Understand your financial goals and choose mutual funds that align with your objectives.
• Fund performance: Evaluate the consistency of returns and consider the fund's historical performance.
• Expense ratio: Be mindful of the fees charged by the fund house, as it can impact your overall returns.
• Fund manager's qualifications: Assess the expertise and track record of the fund manager responsible for managing the fund's investments.

How to invest in mutual funds offline

To invest in mutual funds offline, you can follow these steps:

• Choose an institution, such as an Asset Management Company, a bank, a Karvy/CAMS office, or a mutual fund distributor/agent.
• Submit your Know Your Customer (KYC) documents, including an identity proof, address proof, PAN card, and passport-size photograph. Getting your KYC done is mandatory for all first-time mutual fund investors.
• Complete the in-person verification as mandated by the capital markets regulator, Securities and Exchange Board of India (SEBI).
• Select a mutual fund scheme based on your investment time horizon, risk appetite, availability of funds, and other important factors.
• Submit the mutual fund application form, along with the investment amount. This should be done after the completion of the in-person verification, which usually takes 5-7 days.

Alternatively, you can invest in mutual funds by visiting the branch office or designated Investor Service Centres (ISC) of Mutual Funds or Registrar & Transfer Agents of the respective Mutual Funds. This is a full-fledged physical process that involves submitting a duly filled application form and a cheque or bank draft.

Frequently asked questions