How to invest in the Direct mutual funds

In the previous article I had given you information about the equity mutual funds, saving taxes, and also about the direct and indirect (regular) methods to invest in them. In regular methods the entire process is completed with the involvement of the financial advisor or the distributor who also charges the commission in return of the services offered. However, if you have decided to invest via the direct method and save some more bucks this article will tell you the steps to be followed.

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Selecting the fund

 

This is the first and most important step. You can choose the fund based on the returns they have offered in the past, however, returns offered in the past is not a guarantee that the same pattern will be followed in the future (nobody knows the future). When you see that some mutual fund has consistently given good returns in the past three years of more, it gives you an idea about the knowledge and experience of its fund manager and if your money would be safe in his hands. You can visit the fund’s own website to find out about the returns or compare funds of sites like moneycontrol etc.

For investing in Direct method you can only choose the plans which end with ‘Direct-Plan(G)’ (or D). Here G means Growth and D means Dividend. Only the funds with ‘Direct’ allow the direct investment method. In case of Growth, the money is always kept with the fund unless the investor asks to withdraw it. In case of Dividend scheme at the discretion of the fund some amount is given back to the investor whenever the fund deems necessary. So one can get some amount back as well within the investment period. The amount received is reduced from the total amount. Growth option is advisable if you want to grow your money as much as possible.

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KYC

 

For the first time investor, KYC (Know Your Client) process has to be done. Not to worry, just contact the mutual fund company on their website or call to their customer care no. and they will send all the required form including KYC form. True, you can find and do it on your own as well but I’m here to tell you the simple ways and not to complicate. Fill the KYC form provide your ID and address proof copies and submit them. They may send the collector at your doorstep as well, so inquire with them beforehand. It may take about a week to complete your KYC process, and after which you can invest money in the schemes.

eKYC (an online alternative)

 

Some mutual funds offer electronic KYC as well. In this you must have your updated Aadhar card ready with you. Entire process is online and no signing papers physically. Soon, it is expected all mutual funds houses will offer this facility. Birla SunLife, Reliance are some examples offering this facility.

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The first investment

 

In offline mode the fund house would also send the form for giving the details of your investment. You need to submit a cheque in the name of the scheme for the first time entering the amount you wish to invest every month from your bank account. On the form you permit the fund to take out the amount every month and hence clearing the way for systematic investment every month (SIP as you know). 

In online mode, you submit the form online and some houses ask you an e-copy of a cancelled cheque. You need to specify the amount to be invested and then also set Standing instructions on your account separately to submit the amount monthly to the fund house scheme (using net banking). This completes your part. 

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Note that some people tell that a demat account is necessary to invest in mutual funds. This is false, it's NOT mandatory to have a demat account for investing in mutual funds.

Tracking

 

You would get a folio no. in return from the fund house using which you would have to login to your account on their website to track your investment. Alternately, you could track your investments from the mobile apps offered by the fund house. There are some third party apps which allow you to track all your investments in various funds houses through one single app as well.

One should track the fund performance annually, atleast. Normal ups and downs keep fluctuatuing the value of the invested amount. What one should see is the value earned in the long term (one year or more). If fund is not performing well, one can stop the SIP any time.

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This covers the general overall process to initiate invesing in mutual fund direct plans. The various smaller differences depend on various fund houses and can be clarified by contacting them.

Comments/views/questions are welcome in the section below.