How to Invest in Mutual Funds Online in India for Beginners

Retail investors are no longer shy of capital markets and over the years, retail participation has been driving the stock markets in India. Investors have flocked to mutual funds with total AUM growing from Rs. 26.33 trillion in October 2019 to Rs. 67.26 trillion in October 2024. Are you planning to invest in stock markets but unsure where to start? In this article, let’s discuss how you can start investing like a pro in stock markets through mutual funds and how to invest in mutual funds for long term.

Understanding Mutual Funds

Simply put, mutual funds are professionally managed investment instruments operating under SEBI’s purview. Mutual funds are pooled investments that collect funds from a large number of investors. 

This collective pool of money is invested in capital markets by highly qualified and experienced fund managers on behalf of investors.

Instead of you researching, tracking, analysing several securities on your own, an appointed professional and team does this work for you, saving you time and effort and offering you the best fund management skills at the same time.

Why Invest in Mutual Funds?

There are several benefits of investing in mutual funds, let’s take a look.

• Diversification: Suppose you have a surplus of Rs. 1,00,000 to invest in stock markets. With this amount, you can buy only a few stocks from specific sectors. Mutual funds on the other hand allow you to buy a number of stocks from various sectors that you would’ve not been able to afford singly. 

• Risk Mitigation: Mutual funds invest in a wide range of asset classes and securities, thus mitigating and spearheading the risk from a single asset class. 

• Cost Effective: Due to economies of scale, the management cost, transactional overheads, and other charges are divided among a large number of investors, thus, per-investor expense is low. However, when you invest on your own, you bear every transaction cost on your own, other than your time and learning curve.

• Professional Management: The biggest advantage of mutual funds is that professional fund managers with years of investing experience and expertise manage your funds, thus taking away the stress of finding the best investments, monitoring them from time to time, and responding to market changes quickly.

• Small Quantum: You can invest in mutual funds from an amount as low as Rs. 100. Therefore mutual funds are very convenient for any type of investor, there is no need for a sizeable corpus to begin with. Suppose you want to buy shares of Infosys. The price of one Infosys share is Rs 1800+. To buy even 10 shares you need to have a sum of. Rs. 18000. With mutual funds your investment is spread across multiple shares even with a small amount of Rs. 10,000.

• Secure: Mutual funds are governed by SEBI and AMFI. There are stringent regulations that all mutual fund houses and distributors adhere to, and there are periodic audits and reporting to safeguard investor’s interests. 

• Convenient: Investing in mutual funds is very simple, you need to complete your KYC and start investing through online platforms. There are a variety of funds available from reputed fund houses in different asset classes such as equity, debt, gold, silver, index funds, real estate, etc. to choose from.

How to Invest in Mutual Funds in India

To invest in mutual funds in India, you need to have your KYC updated in KRA records. KRA (KYC Registration Agency) is a SEBI registered entity that manages and maintains KYC records for mutual fund customers centrally. Investors need to maintain updated KYC KRA records by checking their KYC status and submitting required documents in KYC-KRA portal. These records are centrally maintained and valid for all mutual fund houses.

You can invest in mutual funds online by following few simple steps:

• Download Rupeezy app to invest in the best performing mutual funds that suit your goals and risk appetite.

• Complete KYC (Know Your Customer) by adding your PAN number and connecting your DIgilocker for other documents.

• Complete the verification process once your KYC documents are verified your account is activated to invest.

• Go to the ‘Explore’ tab and browse through fund categories.

• Select a category and type of fund you want to invest in.

• Evaluate the Risk-Return metric through a visual graph.

• Go to ‘List View’ to check individual funds.

• Compare funds on returns in different periods, risk, AUM, and expense ratio.

• Evaluate the fund’s impact on your overall portfolio through ‘Impact Analysis’

• Explore ‘MF Lab’, and select your favourite funds.

• Test the performance of your mix with benchmark, portfolio overlap, risk-return comparison with other potential allocations.

• Once you select your choice of funds, select OneTime or SIP investment

• Enter investment amount and make payment using UPI, or Net Banking

• The units are allocated within 2-3 business days

You can also visit the Rupeezy website and invest through the portal. 

How to Invest in Mutual Funds Online for Beginners

If you are a beginner, first and foremost it is necessary to assess your investment goals, how long you want to remain invested, how much risk you are willing to take, and your overall financial picture.

For example, if you have a surplus of Rs. 1,00,000 to invest but may need this fund next year for a new vehicle’s down payment, you may want to invest this money in a debt fund with stable return and low volatility.

In a scenario where you do not foresee any urgent need for this money in the next five years, you can safely look at equity funds for long term growth.

Know How: It is important to understand the basics of mutual funds such as what are the types of funds, the cost involved, tax implications, risk factors, total expense ratio, AUM (Assets Under Management), track record, etc before you start investing,

You can get this information easily through online resources or books. Visit our blog to learn more about mutual funds. 

How Much to Invest in Mutual Funds?

Armed with the basics of mutual funds, you wonder what is the right amount that you should invest in mutual funds. You can arrive at this figure by following few simple steps:

Financial Overview: Grab a pen, paper or open an excel and key in the below details:

• Recurring monthly expenses: Add all your monthly expenses, taxes, insurance payments etc.

• Debt & EMIs: tabulate debt you have, EMIs for house/car/other loans/credit card loans or outstanding payments.

• Short Term Goals: Write expenses incurred on planned trips, gifts, holidays, purchases, etc.

• Long Term Goals: Write down your long term financial goals such as buying a house, child’s higher education, marriage, other high value purchases, etc.

Now, from your total earnings, deduct and prioritise below outflows:

• Debt Repayment: Prioritise all debt payments as these are mandatory commitments you need to keep aside, also consider closing some of the high interest debts such as credit card debt or personal loans.

• Emergency Fund: Save and keep aside six months to one year expenses to manage any unforeseen events such as job loss or sudden medical expenses etc.

• Net Investible Surplus: Deduct debt obligations, emergency fund, monthly recurring expenses, and immediate short term goals from your overall income.

The remaining amount you can plan to invest in mutual funds to meet long term financial goals such as retirement, home purchase, a coveted holiday, etc.

There are mutual funds available for every category of savings and investments such as:

• Liquid Funds: Liquid funds are suitable for parking funds for a day up to 90 days.

• Debt Funds: To meet your need for parking funds for short term in stable, low risk, liquid investments, there are debt funds available that invest in securities maturing in different durations such as up to 1 year, 1-3 years, 3-7  years, etc. You can invest money kept for short term goals in debt funds.

• Equity Funds: Amount saved up for long term goals is best suited to be invested in equity funds. Equity funds invest in shares of listed companies. There is a wide choice in equity funds as well depending on investor’s risk tolerance and preference.

You can choose from low risk, stable large caps companies to volatile but high growth mid and small cap companies. You may invest in funds that replicate the index and come at a much lower cost or may choose to invest in specific sector looking bright.

Different Ways to Invest in Mutual Funds

There are multiple ways to invest in mutual funds

• Various new-age online platforms facilitate easy online mutual fund investments in a few clicks.

• Investors can also invest offline by visiting an AMC’s Investor Service Centre or a registered distributor’s office. You need to complete an application form and issue a cheque to deposit the investment amount.

• Mutual fund houses also known as AMCs (Asset Management Companies) offer investments to investors directly through their websites and distribution offices.

• There are AMFI-registered intermediaries or mutual fund distributors who assist investors in advising investors on mutual funds and facilitating the investment process.

• Many stock trading platforms offer mutual funds along with other investments such as stocks, bonds, commodities, etc. Visit Rupeezy and invest in stocks, bonds, mutual funds, ETFs, derivatives, commodities, futures and options with advanced trading and analytical tools.

Cost of Investing in Mutual Funds

Mutual funds are professionally managed investments, and there are costs involved in managing, operating, and maintaining the corpus. Here are some costs associated with mutual funds:

• Expense Ratio: Expense ratio expressed as a percentage of AUM is the cost of running and managing a fund scheme. Expense ratio is deducted from the fund’s total assets and includes fund management fee for advisory, fund’s distribution costs that include distribution and marketing expenses, and administrative costs that include operations, customer services, etc. 

• Exit Load: An exit load in mutual fund is a discretionary charge that an AMC levies when investor redeems units before a specified period. Exit load is applied to discourage investors from exiting the fund prematurely. Exit load can vary among AMCs and is calculated as a percentage of NAV.

Mistakes to Avoid When Investing in Mutual Funds

There are some common mistakes that you can avoid while investing in mutual funds:

• Comparing Only Returns: Many investors only look at returns in the last one or two years without looking at another important parameter ‘risk’. You must assess the risk metric for every fund before committing your money. 

  Rupeezy app shows you the risk-return comparison for funds in a particular category in a simple visual graph. The more risk a fund takes, the higher the chances of volatility and loss during market upheavals.

  Other ratios such as Sharpe Ratio, Beta, and Standard Deviation give you an overview of risk-adjusted returns, the fund’s volatility relative to the benchmark and deviation from fund’s average returns.

• Investing without a Plan: At times, investors invest in multiple mutual fund schemes without much knowledge about the scheme or looking into their financial objectives. It is pertinent to understand one’s finances, risk appetite, and time horizon and select best-suited funds.

• Investing in NFOs only: Some investors are tempted by NFOs and assume NFOs are more attractive since the NAV is low compared to existing schemes. Mutual funds NAVs are not comparable in value, a low NAV is not ‘better priced’, an NFO invests at the same market levels as any other scheme and growth will be in proportion to the increase in market value of stocks/securities.

• Impulsive Action: Mutual funds invest in securities market which can be volatile due to macro and micro economic factors or sector/stock-related factors. Mutual funds work best when investors allow the funds to remain invested in securities and grow over a period of time.

Conclusion

Mutual funds are the simplest and the least risky mode to invest in securities markets. By choosing mutual funds, you allow professional fund managers to handle your money with their expertise and maximise returns with minimal risk. Adequate knowledge and fund selection to suit your financial needs is the right way to invest in mutual funds. Explore Rupeezy for data backed analysis and tools to help you choose the best funds for your portfolio.

FAQs

Q. How do beginners buy mutual funds?

Beginners can invest in mutual funds by evaluating their finances, risk tolerance and goals. Online platforms such as Rupeezy make mutual fund investing easy with quick account opening, simple fund analysis & selection, and easy payment and investment process.

Q. Can I invest 1000 rs in a mutual fund?

Yes, you can start investing in mutual funds with an amount as low as Rs. 100.

Q. Is a Demat account required for mutual funds?

No, a demat account is not mandatory to invest in mutual funds.

Q. Are mutual funds safe to invest?

Yes, mutual funds are safe to invest in as they are regulated by SEBI and run by professional fund managers. You must evaluate your risk tolerance and goals before investing as stock market investments can be volatile.