Before investing, it is important to understand how mutual funds function. Mutual funds are financial instruments that pool in money from a set of investors with similar return expectations and risk tolerance. The accumulated corpus is invested in various assets such as stocks, bonds and fixed-return instruments by professional fund managers. Each investor is allotted units of the fund in proportion to their investments and has to share the profits and losses in the same proportion. The fund house charges a fee from investors, known as the expense ratio, to manage the portfolio.
One can either invest in a mutual fund directly or through an agent. The mode of investment is an important factor to consider before investing. There are a few other factors to consider before parting with a single penny. Let us take a look before understanding the mode of investment and how to invest in mutual funds online.
- Fix an investment goal: Investing in mutual funds without a clear financial goal or objective in mind is similar to a boat without oars. Some people invest to save for specific purposes like children’s education or marriage, while some invest for retirement. With an investment goal fixing an investment horizon and risk tolerance becomes easy. It would be futile to invest in mutual funds without deciding the investment timeline and risk profile.
- Shortlist mutual fund schemes: There are hundreds of mutual fund schemes available in the market. Choosing a scheme could be confusing and difficult. Taking a look at a few parameters can be of help. The most important factor is the performance of the fund. But take into account a long horizon, especially for equity funds. Fund performance should not, however, be the only deciding factor. Consider the credentials of the fund manager, the expense ratio and the turnover ratio before zeroing in on a mutual fund scheme.
- Choose SIPs: Systematic investment plans have edged out lump-sum contributions to become the primary mode of investments in mutual funds. Investing a small amount regularly reduces the risk associated with market fluctuations and boost returns in the long run. If you invest a lump sum amount, the chances of entering a market at its high increases. It is difficult to generate returns from a high pint without extending the time horizon of the investment. SIPs also inculcate a sense of regular savings.
- Diversify: With a plethora of options it is imperative to gradually diversify your investment portfolio. Diversification helps in protecting against business cycles and sector-specific risks.
- Invest Directly: Mutual fund schemes are sold by agents and can also be bought directly online. Investing through agents was the only option a few years ago, but the advent of online portals has made investing very easy. Agents also charge a fee or commission for their services, which adds to the cost of the mutual fund scheme. You can invest directly in mutual funds through Bajaj Markets. However, many people are not familiar with the process of online investment.
How to invest online?
Online investment in mutual funds is a simple and hassle-free process through Bajaj Markets. After registering on the portal, you have to follow just four easy steps.
- Choose the mutual funds scheme of your choice using some of the parameters mentioned above.
- Provide the investment amount considering your income and risk profile
- Complete the Know Your Customer process
You will have to be ready with documents that establish your identity and address proof. For identity proof, you can use one of the following documents: PAN card, Aadhar Card, Passport, Driving License or Voter ID.
For address proof the following documents can be provided: Aadhar Card, Passport, Driving License, Voter ID, Electricity bill, Gas bill, Telephone bill and property ownership papers such as house purchase agreement, society registration documents, bank loan agreement or Ration card.
- Complete the payment to conclude the process
Advantages of investing online
- Cheaper: investing online in mutual funds saves a substantial amount of money in the long run. The scheme distributor or intermediary charges a fee for his/her services, which gets eliminated in the online process. The difference between the two processes can be as high as 100 basis points or 1 percent. Though it may seem small, it can make a significant difference in the long run.
- Fast process: It has been demonstrated in almost every field that digital processes are significantly faster. Similarly, it is faster to invest online as contacting a distributor and getting all the applications filed and processed manually takes a lot of time and effort.
- Investment advice: When you invest through Bajaj Markets, you do not have to worry about financial advice and planning tips. Distributors were valued more for their advice than their efficiency, but Bajaj Markets has filled the gap with the easy availability of financial tips and advice.
- Insights: Once you have invested in a mutual fund scheme, it is important to keep track and review its performance. Moreover, as you gradually diversify and invest in several schemes, keeping track could become taxing. When you invest in mutual funds through Bajaj Markets, you can get detailed summaries and insights into your portfolio that can substantially simplify the review process. After remaining invested for some time, your financial goals may change depending on the performance of the existing schemes. Periodic reviews help in the reallocation of funds to derive maximum benefit from business and economic cycles. For instance, if your returns are lagging your expectations, you can reallocate some resources to a high-growth equity fund when the market is bullish to catch up in a short time.