If your KYC is complete, you can invest directly in a mutual fund both offline and online. You can invest in a fund by going to the nearest bank if you feel uneasy making a transaction online.
The most practical way to invest directly in Mutual Fund schemes is online, where you may also save money on commissions. Through a fund’s website, its RTA website, or a fintech platform, you can invest online. You must keep track of several logins if you invest directly on a fund’s website.
When you invest in a Direct Plan, you are taking on the responsibility of making a financial plan, selecting the funds that are most suited to your objectives, and routinely checking your portfolio to see whether it needs to be rebalanced. Not everyone is knowledgeable enough about mutual funds to select and manage the appropriate funds.
The Ideal Moment To Buy Mutual Funds?
If you are also using similar justifications when it comes to investing, you are doing something very wrong. Keep in mind that you shouldn’t put off investing; get going right now! If you haven’t yet, this is the greatest day to begin your investment journey!
Here are some pointers to get you started in the world of investing.
1. Don’t wait; it could cost you.
We are merely delaying or avoiding successful wealth creation when we put off or altogether skip investing. As the investment period gets shorter, waiting to invest limits the power of compounding.
Let’s look at the payout that three buddies, Ajay, Vijay, and Ram, will receive at the conclusion of their investment duration to help us comprehend. When two of Ajay’s friends, Vijay and Ram, start investing INR 2,000 per month at ages 25 and 15, respectively, for their retirement at ages 60, the future values of each will be different.
Table 1 shows that as the investment term is shortened, the future value decreases (subtract the age of the person from the retirement age).
Ajay, who started investing early, will have the largest corpus at the time of retirement, even though they all received the same rate of returns on their investments each year. Starting your investment journey early is therefore beneficial if you wish to accumulate a sizable sum of money for your financial objectives.
Let’s say that despite Vijay delaying his investment by five years, he still makes an additional investment of INR 1.20 lakh per year to catch up to Ajay, and Ram makes an additional INR 3.60 lakh per year to catch up to both of them. Even then, the corpus for Vijay and Ram will be less than Ajay’s future value at INR 1.11 crore and INR 99.05 lakh, respectively. The only difference is the price of delay.
2. Select the Proper Asset to Manage Risk and Volatility
Choosing the appropriate asset is crucial since it will help you increase your wealth. Equity as an asset type can significantly increase your wealth, but along with better returns comes equity’s volatility, which investors frequently mistake for danger.
Over time, volatility declines, whereas risk may not. Choosing the proper product is all about risk. For instance, selecting a company with poor management could be risky; regardless of how the market performs, the share price might never increase.
A prime example is the Kingfisher Airlines shares (graph 1). The stock was trading at INR 76 in 2006, and in 2007 it reached a peak of almost INR 300 before falling sharply and never recovering. An investor would have ultimately lost every penny because the stock was delisted. This is a classic instance of a hazardous bet that cost money in the long run, but it wasn’t volatility.
Now, if you chose a company with strong management instead, the pricing may stay the same and stay that way for a very long time, but it will finally produce results. Risk comes from selecting a management, and volatility comes from price movement. Risk is more intrinsic, whereas volatility is a market-related event.
For instance, from 2010 to January 2017, Reliance Industries’ stock price fluctuated between 400 and 500 Indian Rupees. The stock then rose and has maintained its momentum (as seen in graph 2). From INR 544 in February 2017 to INR 2,370.25 in December 2021, the stock’s price increased.
3.Regular and Careful Investing
By investing a set amount at regular intervals, regardless of the state of the market, you can further reduce risk when investing in equity mutual funds by using systematic investment plans (SIPs). This is so that you can buy more units when markets are down and fewer units when markets are up.
The amount you receive at the end of the year on an investment of INR 1.20 lakh is INR 1,45,971 even though you saw a rise of 30% and then a drop of 30% in the markets. For instance, if you are investing INR 10,000 monthly in a SIP and assuming that the Sensex drops by 5% every month for the next six months and then rises by 5% every month for the remaining six months.
If you pay attention, you began with an NAV of INR 10, and after a year, it was back to INR 10 or so.
The Sensex is merely a benchmark for displaying market movements.
How to invest in compatibility
Mutual fund investing is pretty simple! You only need to finish the documentation processes once, and then you can deal without any problem. However, you must select your service provider based on your needs; it works like this:
Step 1: Pick a route – To purchase units of a mutual fund company’s schemes, you must choose a route to get there. Therefore, you must decide whether to take the direct route or use an intermediary!
Step 2 (A): If you selected the direct route, you must either register with the mutual fund company directly or generate your investment ID at any Registrar Point, such as CAMS ( remember – in such case you have to register with each company separately)
Step 2 (B): If you have decided to go the intermediary route, you will need to choose the type of intermediary, such as Commission Based Advisors (whose earnings are derived from the expense ratio of the fund, which is ultimately subtracted from the scheme NAV) or Fee Based Advisors (whose earnings are derived from the fees they charge for their advisory services; in such a case, the cost is not charged from the fund’s expense ratio and there is no deduction in the NAV).
Direct Plans of MF are offered by fee-based advisors, while commission-based advisers specialize in Regular Plans of MF. Both have advantages and disadvantages of their own, so you must analyze it logically and in light of your particular circumstances.
Step 3: Finishing Up the Documentation Regardless of the path you take, you must complete the necessary paper work, including the FATCA, KYC, and Client Registration forms, and send them to the processing point (RnT).
Step 4: You can conduct business alone or with their guidance once you’ve registered with the entity you’ve chosen and received login credentials for their website or mobile application. You may even deal in person if your advisor is physically present in your city.
Monitoring your portfolio Step 5: You will receive your login information from the same party you transacted with in order to manage your portfolio, check on performance, etc.
How can I generate income?
Every return has some risk, whether it is low or high! Products with a higher Return potential also have a higher Risk component. For instance, you will be exposed to just 2% of risk to earn 8% per year, but 14% of risk to make 20% per year!
Therefore, you should understand how to control risk and make sure that the profit is entirely yours.
The fundamentals are as follows:
- Your financial objectives will determine your level of risk tolerance, and your approach to investing will help
- You overcome the Greed vs. Fear dilemma.