Mutual Fund Investments

Mutual Funds usually come out in the form of advertisement in newspapers, publishing the date of launch of the new schemes. Investors who wish to invest in mutual fund schemes need to contact the agents and distributors of Mutual Funds spread all over the country. For necessary information and application forms, investors need to contact these agents and distributors.

Even banks and post-offices act as a facilitator of providing mutual fund schemes to investors but with the provision of online facility, investors prefer to go online for studying about the scheme related offer documents and for subscribing online mutual fund units. Investors need to make themselves clear about the objectives of mutual fund before making any investment.

Mutual Fund Objectives

Safety of Capital : A mutual fund with the safety of capital as its investment objective tends to carry less risk and often a lower return. The type of mutual fund which has this type of investment objective is known as money market mutual fund. The risk level is usually based upon the type of investments within the portfolio. For example, a pure money market mutual fund tends to be a less risky investment as compared to a fund that predominately invests in short-term corporate notes.

Income : A mutual fund with an emphasis on 'income' as its investment objective tends to carry more risk as compared to a money market fund, but the returns will be high. Both domestic and international bond funds, mortgage funds and dividends are typical funds which have income as their prime objective.

Growth : Mutual funds with an emphasis on 'growth' as its investment objective provide investors with a good hedge against inflation and predominately invest in common stocks and at times in preferred shares. They are typical known as equity funds.

Where do Mutual Funds Invest?

Broadly, Mutual Funds investments are made into three types of asset classes:

Stocks :

Stocks represent ownership or equity in a company, which are also known as shares.


Bonds represent debt from companies, financial institutions or government agencies.

Money Market Instruments:

These consist of short-term debt instruments such as treasury bills, certificate of deposits and inter-bank call money.

Modes of Mutual Fund Investment

There are two ways of Investing in Mutual Funds- Offline and Online

Investors need to follow the steps while applying for mutual funds manually.

Step 1 : Investor needs to contact a representative of an empaneled distributor of the Mutual Fund company.

Step 2 : Get the application and KYC form from the website or any branch of the mutual fund company or empaneled distributor office.

Step 3 : Fill the details in an application/KYC form and provide necessary information i.e. name, address, PAN, email address, mobile number, etc. This email address and mobile number will be used for further communication and can also be used for registering online transaction services.

Step 4 : Attach the copies of all important documents and submit them along with a cheque or demand draft of the ascertained investment amount.

Step 5: Submit duly signed application/KYC form with the cheque along with all the necessary documents to the empaneled distributor office of the Mutual Fund company.

Step 6 : The empaneled distributor office will assist the investor in allocating and furnishing a folio number of that particular investment by contacting the mutual fund company. Further, assistance is provided to investors for obtaining an Account Statement after the final processing of the transaction.

Online Portal is a quick, convenient and efficient tool that helps investors for carrying out their transactions smoothly and also managing their investments. Online Portal offers a host of services and facilities.

The following are the features that make your online investment without any difficulty:

  1. Offline Investment

  2. Online Portal

    • Easy Accessibility: Investors need to complete their KYC process and register their email address for generating username and password before starting to invest in online mutual funds of their choice.
    • Financial Transactions at One place: Investors can now complete all their financial transactions at one place such as investing in a scheme of their choice, switching from one scheme to another or redeeming investments from a particular scheme, online in just a few clicks.
    • Comparison of Funds: Investors can keep a track on the performance of their funds and compare it with other funds to see the changes in their NAVs over a particular period of time, so as to make an informed decision about investing in different categories of funds.
    • Online Chat: Investors can also avail the facility of talking to an expert online by using online chat assistance for getting their queries answered. This can also sort-out their online investment process in a convenient manner.
    • Create Watch-lists and Alert Notifications: Investors can also avail the facility of proactively managing their investments which are dependent upon a sound market understanding. The online portal helps them to create watch-lists in order to keep a close track of their selected funds. The set alert notifications allow the investors to access the time-to-time information they need and at times become handy.

Cost associated with investing in mutual funds

Entry and Exit Load: There are some expenses involved which mutual fund companies incur to float, operate and administer a fund. These expenses are accumulated from the investors as a percentage of their total investment which is referred to as loads.

There are two types of loads: entry load and exit load. The fee which is charged from the investors at the time of buying the mutual fund units is known as entry load, whereas the amount charged from investors at the time of selling the units is called exit load. While, entry loads are not charged by mutual fund companies but they still charge exit loads. The current practice of the funds charging exit loads varies from 0.50% to 3% depending on the holding period by investors.

Fees or Fund Management: The mutual fund company charges a fee which is a small percentage of the fund's total value in order to manage the investments on the behalf of investors. This amount usually goes to the fund manager as a fee for undertaking all the management procedure related to the mutual fund. The fee is levied as a percentage of the fund's value on an annual basis.

Expense Ratio : The percentage of total assets incurred for operating a mutual fund is known as the expense ratio. As returns from bond funds possess similarity, expenses become a crucial factor while comparing bond funds. Suppose an investor has invested ₹10,000 in a mutual fund with an expense ratio of 1.5 percent, then ₹ 150 would be incurred by the investor as a payment towards managing money. In other words, if a fund earns 10 percent and has an expense ratio of 1.5 per cent, it would mean an investor has earned an 8.5 percent return from the fund.

Transfer/exchange fee : Transfer fee is chargeable from investors at the time of transferring their investment from one mutual fund scheme to another one.

Best Way to Invest in Mutual Funds in India

Invest through SIP :

Investing through SIP every month is the best way of investing in mutual funds. Every small amount invested through the mutual fund, every month holds the capacity to generate a good amount over a period of time. For example : if an investor is investing ₹ 5,000 per month through SIP in equity fund with an annualized returns of 12% can generate ₹ 25 lakhs in 15 years.

Invest based on risk appetite:

High-risk appetite investors are focussed more towards investing in equity funds, moderate risk appetite investors would prefer to invest in hybrid funds(Equity+debt combination) and low-risk appetite investors would be preferring to invest more in debt related funds. In short, investors investing as per their risk style would yield higher returns.

Invest in various categories of funds :

Large cap, mid-cap, and small-cap funds perform differently over a period of time in several market scenarios. Hence, investing in different categories of such funds would help investors to derive maximum returns.

Invest in sectors that are expected to outperform :

High-risk investors who are willing to take risks would like to invest in high-risk funds such as sector funds. Such investors can consider sectors that have the possibility to outperform in the near future and invest in such funds. For example : Considering Infrastructure funds or banking funds would be the best bet for a short-term to medium term of 3 to 5 years.

Invest in funds based on one's financial goal:

Investors inability to understand about mutual funds could lead to investing in wrong funds or failure in holding the fund for the longer term are some of the mishappenings caused while making mutual fund investment decisions. Investors shouldn't invest just because a mutual fund scheme has given 100% returns in one year. There lies a possibility of eroding in the capital amount of an investor if there is a market crash. However, investors should invest based on their financial goal. For example : An investor wants to save money of ₹ 30 lakhs for their child's foreign education in next 15 years. Hence, an investment of ₹ 6,000 per month is being made in a well-diversified mutual fund portfolio of 15 years has actually helped the investor in achieving this goal. However, an investment should always be made based on a pre-defined goal for achieving the best result.

Use STP for lump sum mutual fund investments :

The biggest mistake an investor commit is investing the lump-sum amount in equity funds. This may perhaps be a good strategy taken towards market corrections. However, when markets are reaching the peak or when an investor is ignorant of the market's direction, the best way to invest a lump sum in mutual funds is to invest in short term debt funds or do STP(Systematic Transfer Plan) to equity funds over a particular period of time. This is nothing but doing SIP to equity fund from debt fund would help reduce the risk of investing a lump sum in the mutual fund.

DISCLAIMER - Mutual Fund investments are subject to market risks. Please read all the scheme related documents carefully before investing.