How Can I Invest in Mutual Funds in India?

How Can I Invest in Mutual Funds in India

An investment in mutual funds can be made both offline and online. The following is the process for investing in a mutual fund scheme:

Step 1: If you are investing through the offline mode, you can visit either an asset management company (AMC) branch, the nearby Karvy/CAMS office or a registered mutual fund distributor/broker. If you want to go via the online mode, you can visit the website of either an AMC (for both direct and regular mutual fund schemes) but the option of funds available to you will be limited. Alternately you can log on to the website of a registered mutual fund distributor such as Paisabazaar and invest in leading mutual funds in India across top fund houses.   

Step 2: After this, you need to complete the KYC (Know Your Customer) formalities as per SEBI guidelines.

Step 3: The next step is completion of In-Person Verification (IPV). IPV can be completed by either by visiting the nearby Karvy/CAMS office etc. or sending documents in paper/applicable digital format to the registered mutual fund intermediary.

Step 4: Select a mutual fund scheme on the basis of your investment time horizon, risk appetite, and other important factors. You can read more about how to select a mutual fund scheme here.

Step 5: Submit the mutual fund application form. This can be done after the completion of the IPV which usually takes 5-7 days. Along the application form, also submit the investment cheque amount. If you wish to invest via a SIP (Systematic Investment Plan), fill and submit the SIP form along with the application.

10 Most Popular Mutual Fund Schemes in India

10 Most Popular Mutual Fund Schemes in India

The following is a list of the 10 most popular mutual funds in India based on their AUM as of February 28, 2019:

S.No.	Name of Scheme	AUM (in Crore)	Type of Scheme
1	HDFC Liquid Fund	Rs. 69,397	Debt
2	ICICI Prudential Liquid Fund	Rs. 59,354	Debt
3	Aditya Birla Sun Life Liquid Fund	Rs. 57,548	Debt
4	HDFC Balanced Advantage Fund	Rs. 37,395	Hybrid
5	ICICI Prudential Balanced Advantage Fund	Rs. 28,499	Hybrid
6	SBI Equity Hybrid Fund	Rs. 27,907	Hybrid
7	Kotak Standard Multicap Fund	Rs. 21,628	Equity
8	Aditya Birla Sun Life Frontline Equity Fund	Rs. 20,664	Equity
9	HDFC Mid Cap Opportunities Fund	Rs. 20,539	Equity
10	HDFC Equity Fund	Rs. 20,465	Equity

(Data as on February 28, 2019; Source: Value Research)

10 Most Popular Mutual Fund Houses in India

10 Most Popular Mutual Fund Houses in India

Below is a list of the 10 most popular mutual fund houses in India on the basis of their total assets under management (AUM) as of March 31, 2019.

S.No.	Name of Fund House	AUM (in Crore)
1	HDFC Mutual Fund	Rs. 3,42,525
2	ICICI Prudential Mutual Fund	Rs. 3,21,281
3	SBI Mutual Fund	Rs. 2,84,124
4	Aditya Birla Sun Life Mutual Fund	Rs. 2,46,696
5	Reliance Mutual Fund	Rs. 2,34,293
6	UTI Mutual Fund	Rs. 1,59,694
7	Kotak Mahindra Mutual Fund	Rs. 1,50,271
8	Franklin Templeton Mutual Fund	Rs. 1,19,933
9	Axis Mutual Fund	Rs. 89,768
10	DSP Mutual Fund	Rs. 78,363

(Data as on March 31, 2019; Source: AMFI)

How Do Mutual Funds Work?

How Do Mutual Funds Work?

While you might have heard many experts say that investing in mutual funds is one of the best ways to grow your wealth, it is perhaps even more important to know how mutual funds work. Let’s understand the working of mutual funds right from the time an Asset Management Company (AMC) or fund house decides to launch a mutual fund till it starts giving attractive returns:

1. The process begins when a fund house identifies a potential money-making opportunity in the market subject to key risks.
2. The fund house then weighs the newly identified opportunity against existing investment opportunities and analyses how it can add further value for current investors.
3. The fund house then appoints a fund manager who creates a portfolio of different asset classes including equities, debt and money market securities. The asset allocation of the scheme decides under which mutual fund category the scheme will fall – Equity Fund, Debt Fund or Hybrid Fund.
4. The fund manager then compiles all the details including the scheme’s asset allocation, risk level, etc in a document and files the draft with market regulator SEBI for its approval.
5. After receiving SEBI’s approval, the fund house makes the scheme available to the public for subscriptions through a New Fund Offer (NFO). An NFO generally lasts for 7-10 days.

On the basis of the subscription period, mutual fund schemes can be classified as open-ended and close-ended schemes. An open ended mutual fund scheme allows investors to enter and exit the fund anytime even after the closure of the NFO period. Whereas, a close-ended fund allows investors to enter into the scheme only during the NFO period and does not allow them to exit it until maturity which is typically 3-4 years from the launch date.

1. After receiving the initial subscription, the fund manager manages the scheme actively or passively depending on the scheme’s requirements as well as market/economic conditions.
2. A mutual fund investment provides earning to its investors in the form of dividend payouts and capital gains.

Benefits of Mutual Fund Investments

The following are the benefits of investing in mutual funds:

Flexible Investment AmountsA mutual fund investment can be started with an amount as low as Rs. 500 while there is no limit on the maximum amount you can invest. But do keep in mind that in case of ELSS investments, you get the tax benefit only up to the Rs. 1.5 lakh 80C limit in a financial year.

Professional Management of FundsWith mutual fund, an investor can benefit from the professional management of his/her funds by an expert fund manager. Fund houses charge a nominal fee for the administration and management of a mutual fund scheme called Expense Ratio. The expense ratio of a mutual fund generally ranges between 0.5% to 1.5% and cannot exceed the limit of 2.5% set by SEBI. Fund houses always mention the returns generated by a mutual fund scheme after deducting the applicable expense ratio.

High ReturnsMutual funds offer long term returns that range from 7% (in lowest risk carrying liquid funds) and 15% or higher in case of most equity funds over a 5 year period. These inflation beating returns provided by mutual funds are one of the key reasons why many are choosing these market-linked investments over fixed income instruments such as fixed deposits.

DiversificationMutual funds allow investors to access a wide and diversified investment portfolio that can include equities of varying market capitalisations as well as debt and money market instruments for an investment amount which can be as low as Rs. 500. The diversified investment portfolio allows a mutual fund to provide an unmatched balance between risk and return.

Systematic Investment OptionA systematic investment plan (SIP) is a method of investing in mutual funds which allows investors to invest a fixed sum in a mutual fund scheme at predetermined intervals (daily, weekly, monthly, bi-annual or annual). SIP investments reduce the potential financial risk associated with a lump sum investment. It also enables an investor to increase/decrease the investment in line with the current financial situation of the investor.

Tax BenefitAn Equity Linked Savings Scheme (ELSS) is a type of mutual fund which helps an investor in getting a tax benefit in addition to the above-mentioned benefits. An ELSS comes with a lock-in period of 3 years and every ELSS investment qualifies for a tax deduction of up to Rs. 1.5 lakh under Section 80C of the Income Tax Act. Even in the case of other (non-ELSS) equity schemes, capital gains from unit redemption up to Rs. 1 lakh in a fiscal are exempt from tax.

What is a Mutual Fund?

To many people, Mutual Funds can seem complicated or intimidating. We are going to try and simplify it for you at its very basic level. Essentially, the money pooled in by a large number of people (or investors) is what makes up a Mutual Fund. This fund is managed by a professional fund manager.

It is a trust that collects money from a number of investors who share a common investment objective. Then, it invests the money in equities, bonds, money market instruments and/or other securities. Each investor owns units, which represent a portion of the holdings of the fund. The income/gains generated from this collective investment is distributed proportionately amongst the investors after deducting certain expenses, by calculating a scheme’s “Net Asset Value or NAV. Simply put, a Mutual Fund is one of the most viable investment options for the common man as it offers an opportunity to invest in a diversified, professionally managed basket of securities at a relatively low cost.

Types of mutual funds

Various types of Mutual Funds exist to cater to different needs of different people. Largely, they are of three types.

1. Equity or Growth Funds

• These invest predominantly in equities i.e. shares of companies
• The primary objective is wealth creation or capital appreciation.
• They have the potential to generate higher return and are best for long term investments.
• Examples would be
  • “Large Cap” funds which invest predominantly in companies that run large established business
  • “Mid Cap” funds which invest in mid-sized companies.
  • “Small Cap” funds that invest in small sized companies
  • “Multi Cap” funds that invest in a mix of large, mid and small sized companies.
  • “Sector” funds that invest in companies that are related to one type of business. For e.g. Technology funds that invest only in technology companies
  • “Thematic” funds that invest in a common theme. For e.g. Infrastructure funds that invest in companies that will benefit from the growth in the infrastructure segment
  • Tax-Saving Funds

2. Income or Bond or Fixed Income Funds

• These invest in Fixed Income Securities, like Government Securities or Bonds, Commercial Papers and Debentures, Bank Certificates of Deposits and Money Market instruments like Treasury Bills, Commercial Paper, etc.
• These are relatively safer investments and are suitable for Income Generation.
• Examples would be Liquid, Short Term, Floating Rate, Corporate Debt, Dynamic Bond, Gilt Funds, etc.

3. Hybrid Funds

• These invest in both Equities and Fixed Income, thus offering the best of both, Growth Potential as well as Income Generation.
• Examples would be Aggressive Balanced Funds, Conservative Balanced Funds, Pension Plans, Child Plans and Monthly Income Plans, etc.