How To Invest in Mutual Funds Directly?

Investing directly in mutual funds can be a great way to build wealth over time.

Recently, many new wannabe investors joined the race of investing in stock market, a few of them liked to invest directly in stocks and securities while the majority of them liked the way of mutual fund invest as it requires less capital and even with less capital you can diversify all the invested amount. Although there are many ways to invest in mutual funds like:

• Invest through banking applications and financial institutes (regular). I do not like this method because banks are middleman, and they offer only regular option.
• Invest through broker’s account (direct and regular). Groww, Coin, HDFC Sky*, etc.
• Invest through mutual fund house (direct and regular). SBI MF, HDFC MF, etc.
• Invest through MFCentral (direct and regular). My recommendation.

*HDFC Sky doesn’t allow investing in direct mutual funds, so their expense ratio will be high. If you really care about long term returns, avoid investing through it, instead opt for other direct ways.

I use or recommend using MFCentral, because it is powered by CAMS & KFintech, and they are the key players and apex body in managing mutual funds. It is even better than mutual fund houses because you do not have to maintain accounts with every house.

Now enough of the best route to invest now focus on how to invest, that too in direct plans. Here’s a step-by-step guide to help you get started:

1. Understand Mutual Funds.

• What is a Mutual Fund? A mutual fund pools money from multiple investors to invest in a diversified portfolio of stocks, bonds, or other securities.
• Types of Mutual Funds: Equity funds, debt funds, hybrid funds, index funds, and sector-specific funds are some common types. Read this article to learn more about.

2. Choose Between Direct and Regular Plans.

• Direct Plan: You invest directly with the mutual fund company without intermediaries, leading to lower expense ratios and higher returns.
• Regular Plan: You invest through an agent or broker, and they charge a commission, resulting in a higher expense ratio. Regular plans have 2x and 3x expense ratio.

3. Complete KYC (Know Your Customer).

• Documents Needed: PAN card, Aadhaar card, address proof, bank details, and a passport-size photograph.
• Online KYC: Many platforms allow you to complete KYC online by uploading documents and doing a video verification.
• Offline KYC: You can submit your documents physically at the fund house or through a registered intermediary.

4. Choose a Mutual Fund.

• Identify Goals: Define your investment objectives (e.g., wealth creation, tax savings, retirement planning). Based on different goals, there are different mutual funds.
• Fund Selection: Choose funds based on risk appetite, investment horizon, and performance history. Usually, high risk mutual fund gives high return.
• Research: Use online tools to compare fund performances, check expense ratios, and read fund reviews. My personal favorite tool is tickertape.

5. Select an Investment Platform.

• Mutual Fund Websites: Invest directly through the official websites of mutual fund companies. It was my favorite option, but now I like MFCentral more.
• Online Portals: Platforms like Zerodha Coin, Groww, Kuvera, and Paytm Money allow you to invest directly in mutual funds; double check once, as some brokers don’t allow it.
• Apps: Many mutual fund companies have their own apps for easy direct investment.
• The apex body is MFCentral, MyCams, KFinTech; you can use them.

6. Start Investing.

• Look for mutual fund schemes that end with “Direct” term. For example, HDFC Index Fund Nifty 50 Plan Direct is direct one with TER 0.20%, and HDFC Index Fund Nifty 50 Plan is regular one with TER 0.40% including additional commissions.
• Growth vs. IDCW: In every scheme there would be two options, Growth is common one which most of the individuals choose, IDCW (Income Distribution cum Capital Withdrawal) is income scheme that pays you a regular income which is more suitable for aged senior citizen or individuals who like to earn a passive income.
• Lump Sum Investment: Invest a significant amount at once. Best mode of investment for them who wait for big opportunities like huge correction in market. But for this you need to track the market regularly and see where opportunities are popping up.
• Systematic Investment Plan (SIP): Invest a fixed amount regularly (e.g., monthly), which helps in rupee cost averaging. SIP is the best route of invest who don’t track market daily.
• Automate Investments: Set up auto-debits from your bank account for SIPs.

7. Monitor Your Investments.

• Review Periodically: Track the performance of your investments against your goals.
• Rebalance Portfolio: Adjust your investments, if necessary, based on market conditions or life changes. If a selected mutual fund is underperforming, it is better to switch to others. You may face opportunity loss if fail to rebalance the portfolio timely.

8. Taxation Considerations.

• Capital Gains Tax: Long-term and short-term capital gains are taxed differently.
• Dividends: Dividends are taxed in the hands of investors based on their tax slab.

9. Redeem Your Investments.

• Redemption Process: You can redeem your units partially or fully through the platform you invested in.
• Time for Redemption: The money usually gets credited to your account within a few working days.

10. Stay Informed.

• Market News: Stay updated with market news and trends.
• Fund Performance: Regularly check the performance of the funds you have invested in.

Some Important Tips from My Experience:

• Start Early: The earlier you start investing, the more time your money has to grow.
• Stay Disciplined: Stick to your investment plan, regardless of short-term market fluctuations. Market is too much unpredictable; don’t try to time it.
• Bankers are not financial advisors; they are commission earners.

Investing directly in mutual funds is a straightforward process that allows you to minimize costs and maximize returns. It is a better way of investing when investment capital is less.

Do not fall for quick get rich schemes, and never fall for any market tips sent through a message, they all are scam and made to cheat you.

Make sure to do thorough research or consult a financial advisor if needed.