How do you invest in mutual funds?

Mutual funds can be a powerful tool for financial freedom. There are several websites, blogs and magazines dedicated to this. But do you know different channels through which you can invest in mutual funds?

There are mainly 6 channels

  1. Your Demat Account
  2. Via consultants/banks etc
  3. Online via the respective mutual fund websites
  4. Directly through Mutual Fund Registrars – CAMS/Karvy
  5. Directly to the offices of the investment funds – by post/physical delivery
  6. Dedicated websites offering various mutual fund programs

We take an in-depth look at the pros, cons, and process for investing through each channel

demat account

The Demat account only makes sense for people who invest directly in the stock markets and therefore not everyone would have it.

Advantage:

  • You can buy/redeem an MF from the comfort of your own home with just a few clicks.
  • You have a consolidated portfolio in one place. So it becomes easy to manage.
  • No more tedious forms to fill out or documents to hand out every time you buy MF.
  • Invest now. Assuming the markets suddenly fall at 2:30am, you can invest before 3:00am to get the same day NAV and thus buy at a lower price.

Disadvantages:

  • It is the most expensive channel. Even with the elimination of the entry fee, Demat accounts like Reliance Money will be charged 2.25% for buying mutual funds.
  • Not all systems are offered by all Demat accounts.

Via consultants/banks etc

They have a financial advisor for you and you can buy directly from them. All you have to do is call him and he will collect the form and the necessary documents from you.

Advantage:

  • Simple investment process.
  • Good channel for people not familiar with internet.
  • If you have a good financial planner, he will advise you to make good plans.

Disadvantages:

  • Fee-based system: You must pay your advisor either an annual fee/visiting fee or a commission-based fee.
  • Advice may not be in your best interest and he may recommend funds to you where he earns high commissions. (unfortunately that happens most of the time)

Online via the respective mutual fund websites

This is a very good channel and I personally prefer this one. The problem, however, is that very few MF offer this possibility. But then you can always find good schemes underneath.

The process of investing online through MF websites is more or less similar for all MFs.

  1. You can either download the form from their websites or fill it out online (if they have the opportunity).
  2. Fill out the form and attach your certified copy of the PAN card, the photocopy of the bank check along with the payment check.
  3. Complete the PIN agreement form available on their website. This is necessary as you would need a PIN number to login to your MF account.
  4. Send these completed forms and documents by courier to the appropriate MF address or physically submit them to their registrars – CAMS/KArvy.
  5. In about 2 weeks you would get the pin number and everything you are ready to invest online.

Advantage:

  • You have all the benefits of the Demat account here.
  • No commission/fee or hidden costs.

Disadvantages:

  • The first investment should be in physical form. So, you must first invest through your advisor or other physical channels.
  • All mutual funds have different websites and different PIN numbers. So if you invest in a large number of systems, it would be difficult to track them. You would also need to remember several folio numbers and passwords.

List of fund houses that offer direct online investments

  • HDFC
  • trust
  • rector
  • Birla sun life
  • ICICI Prudential
  • IDFC
  • Tata
  • quantum
  • MorganStanley
  • Kotak
  • Franklin Tempelton
  • UTI
  • loyalty
  • Bharti AXA
  • A wonderful addition
  • SBI
  • Sundaram BNP

Directly through Mutual Fund Registrars – CAMS/Karvy

Here you need to download and fill out the form from the relevant MF website. Include a photocopy of your PAN card and physically submit it to the CAMS/Karvy office in your city. The registrar would validate your PAN card. Therefore, keep the original PAN card when submitting an uncertified PAN photocopy.

Advantage:

  • It’s a direct channel, so no commission whatsoever.

Disadvantages:

  • You must physically go to the office to submit them. So not suitable for everyone, especially in small towns. Every time you make an investment, you have to fill out a lengthy investment form. However, if you invest in a fund that offers online investment opportunities, you can invest online afterwards.

For a complete list of karvy/cams offices and where to submit your forms for various mutual funds, go to: http://www.moneycontrol.com/easymf/order_forms/invest_easy.php

Directly to the offices of the investment funds – by post/physical delivery

You must follow the same process as submitting to CAMS/Karvy. But if you post it you wouldn’t be sure what daily NAV would apply to your purchase. The NAV applicable to your investment is the date the MF office receives your form and documents.

Advantage:

  • It’s a direct channel, so no commission whatsoever.

Disadvantages:

  • Every time you make an investment, you have to fill out a lengthy investment form.
  • Postal delivery can take 2 days, so the purchase price remains uncertain.

Dedicated websites offering different mutual funds in one place

There are two websites that offer this service:

  • Fundindia.com
  • Fundsupermart.co.in

This is the newest of all the channels in India and the most convenient so far. I only know these two sites that offer this service

You can choose any one by looking at the mutual fund program coverage and other additional services you want. The account opening process is very similar for both.

  1. You must fill out an online form.
  2. The completed form will then be emailed to you
  3. Download the form from your email, print it out and sign it in the appropriate places
  4. Attach the PAN card, photocopy of bank check, proof of address and a photo along with the KYC form and send it by courier to the address provided.

Advantage:

  • You benefit from online investments like demat account but without paying anything.
  • There are other value-added services that are also free

Disadvantages:

  • The cut-off time here is around 2:00 (in fundindia) and 1:20 (in fundsupermart), while it is 3:00 for direct online investing via MF websites.

note: For all types of online investments, you need a bank account with online money transfer facilities.

Although this is the best channel so far, I personally prefer FundsIndia over FundsSuperMart because…

  • Stock fund cut-off time is 1:20 am at FundsSuperMart while 2:00 am at FundsIndia
  • You cannot invest until you have a KYC complaint through FundsSuperMart while you can invest up to Rs 50,000 through FundsIndia even without being KYC.
  • FundsIndia will send you a prepaid courier and seem to have better customer support. You actually save on your courier costs as well.

Conclusion: Take any channel you find convenient, but you must invest in mutual funds to achieve your goal of financial freedom!!!