What does it mean to buy Mutual Funds online?
Online investing has revolutionised how people get into mutual fund investments. No more visiting banks or filling out paper forms; you can complete your whole investment process online, starting from the KYC (Know Your Customer) process till monitoring your portfolio.
These days, you can invest using:
- Websites of Asset Management Companies (AMCs)
- Mutual fund investment apps
- Brokerage platforms
- Mutual fund portals
After registration, investment is quick, taking just a few minutes. More crucially, your investments will always be available for you to check, adjust, or withdraw from.
A 2-minute prep before you start
You don’t require mounds of paperwork to get started with investing. All you need is to have this list ready:
- PAN card
- Aadhaar card
- Mobile number linked with Aadhaar Card
- Bank account details
- Email ID
Moreover, you will have to get your KYC done if it is your first investment.
Step-by-step: How to buy Mutual Funds online
The process is easier than most people think.
Step 1: KYC completion
No investment without KYC. KYC is a one-time process of identifying you. In today’s time, almost all portals allow you to complete your KYC by using:
- Aadhaar OTP
- PAN card verification
- Video verification, if required
What's great is you don't have to move out of your home for it. Once you complete KYC, you are ready to pick your investment platform.
Step 2: Choose a trusted investment platform
An ambiguous application may make investments stressful. Select a platform which is safe and user-friendly. It must provide the following features:
- Direct mutual funds
- SIP creation
- Portfolio management
- Safe payment gateway
- Easy withdrawals
The convenience ensures that the process becomes consistent. Here's the question that truly counts.
Step 3: Know the purpose of investing
Avoid choosing a mutual fund first. Choose your objective first. Here’s what you should ask yourself:
- Long-term investment
- Buying a house?
- Going on vacation?
- Setting up an emergency fund?
- Retirement planning?
The objective can help you select the mutual fund that suits your needs. Without it, you are simply speculating.
Step 4: Select the right Mutual Fund
This is when most new investors make their biggest mistake. Instead of aiming for the highest returns, evaluate mutual funds by:
- Investment objective
- Risk level
- Historical consistency
- Expense ratio
- Fund manager
- Assets under management (AUM)
Remember that while past returns offer perspective, they never predict future returns.
Step 5: Decide between SIP and Lumpsum
Both methods help you invest. The difference is in the way the money is invested.
SIP
Make a fixed investment every month E.g., ₹2,000 every month. This suits those who receive a monthly income and want to make investments a regular thing
Lumpsum
One huge investment in one attempt. For instance, an investment of ₹1 lakh in one go. It helps when you have received some additional amount through bonus or inheritance or savings, etc.
There is no best one. Everything depends on your financial condition.
Step 6: Enter the investment amount
Here's one popular myth worth busting. It does not take lakhs for initial investments. There are various mutual funds which take an SIP even of ₹500.
Instead of focusing on the question of “What is the maximum I can invest?” Ask yourself “What can I afford to invest each month without fail?”
Step 7: Make the payment
Almost there. Pay using:
- UPI
- Net banking
- AutoPay
- Bank mandate
With a SIP, once you activate the AutoPay feature, you don’t have to worry about making payments on a monthly basis. All you need is one set-up, and that will be enough for your investments to run automatically. Now comes the step that beginners often overlook.
Step 8: Track your investments
Monitor your portfolio after every six to twelve months. See if:
- Your investments align with your objectives.
- You have to invest more in SIP.
- You have a balanced portfolio.
Never monitor your portfolio daily. A mutual fund is made for long-term investment, not daily excitement.
Types of mutual funds you can buy
Selecting a which type of mutual fund to go for is similar to choosing a mode of transport. A bicycle, a car, and a train can help you move, but each of them is designed to suit a particular purpose. It is the same with mutual funds.
Equity funds
Equity funds focus mainly on investing in the stock market. This makes them subject to short-term volatility. But, with a long-term investment time frame, they present great prospects for creating wealth.
These types of mutual funds might be suitable for Investors with a long term outlook and high-risk tolerance.
Debt funds
Not every financial goal requires exposure to the stock market. Debt funds include investments such as government securities and bonds.
As debt funds are typically less risky than equity funds, they are often favoured by investors who desire stability in their investment return. Debt funds can be used for short-term financial goals, emergency situations, or whenever you prefer to take relatively lower risks.
Hybrid funds
If equity investment seems too risky and debt investment is too conservative, hybrid funds provide a midway solution for both of them. The equity segment ensures growth, and the debt segment acts as a buffer against any fluctuations in the portfolio.
That’s why they have become so popular with first-time investors. Those who have a medium risk profile with medium or long-term objectives can invest in such funds.
Index funds
Index funds just mirror a market index, such as the Nifty 50 or Sensex. Since they do not aim to outperform the market, their expense ratios are generally lower. When you would like an easy investment without having to evaluate many funds, you can opt for index mutual funds.
ELSS funds
The ELSS (Equity Linked Savings Scheme) funds allow investments in equities and provide tax-saving benefits under Section 80C (eligibility required) for old regime.
This scheme requires a lock-in of three years, thus becoming one of the shortest lock-in periods for tax-saving investments. For instance, if you are a qualified taxpayer and want to save on taxes and earn money in the long run, an ELSS investment can be helpful in both respects.
Liquid funds
Not every investment needs to have a long-term horizon. In case you are investing money to meet your needs within a few months from now, liquid funds may be a good option. Liquid funds invest in short-term debt instruments and aim to provide liquidity with a low level of risk.
They suit short-term purposes and hold excess cash temporarily.
Common mistakes first-time investors make
Everyone begins somewhere. But not making these mistakes helps ease your path as an investor.
Investing without a goal
Making investments randomly will usually lead to random results. Understand why you are investing before choosing an investment.
Chasing last year's best returns
A fund which was a top performer last year may not deliver the same results again. It is better to go for consistency than hype.
Stopping SIPs during market falls
Market corrections are very common. Halting SIP when there is a temporary decline means you are missing out on buying units at a reduced price.
Ignoring risks
Higher returns generally come along with greater risks. Select investments based on your risk tolerance.
Expecting quick profits
Mutual funds do not make one rich overnight. Time is an essential component when it comes to earning money.
Tips before you buy mutual funds
Investing in mutual funds online is quite simple. Creating wealth through it requires certain smart practices.
- Don't wait until you have your dream salary to start investing. Begin with what is comfortable for you.
- Got a raise in salary? Upgrade your SIP as well, even if the increment is a small one.
- Investing should be consistent. Missing SIPs frequently can impact your investment progress.
- Diversify a bit. Don’t invest all your savings in one fund only.
- Review your portfolio once or twice a year, not after every market update in the news.
- Fluctuations in the market are normal. Stop panicking each time your investment portfolio starts turning red.
- Spend a few minutes studying the plan to understand where your money is really invested.
Is buying mutual funds online safe?
Yes, if you invest in mutual funds online via a safe and reliable portal.
Make sure that:
- It complies with SEBI regulations.
- Your banking details have been verified.
- You have enabled 2-Factor Authentication.
- You never disclose your OTP and password.
One should also keep in mind that even though investing in mutual funds is secure, its returns are market-dependent.
Final thoughts
Clicking Invest is probably the easiest thing about investing today. The smart move is understanding your reason for investing and selecting an appropriate fund.
Once you know how to buy mutual funds online, then comes the part of sticking to the investment.
That is where wealth is created.
