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How to Invest in Mutual Funds & Step-by-Step Guide on How to Start SIP Investment

Are you a first-time investor and want to invest in mutual funds (MF) but don't know how? Continue reading as the article guides you on the steps to invest in mutual funds and everything you need to know about starting SIP investments.

Why Invest In Mutual Funds? 

A CRISIL report dated December 17, 2020, predicted industrial Assets Under Management(AUM) of mutual funds to exceed INR 50 lakh crores. They are a popular investment choice because of their reduced risks, diversified investment, fair price and dividend reinvestment features. 

What are Systematic Investment Plans (SIP)

SIP is an investment pathway wherein investors can invest as little as INR 500 per month in a chosen MF scheme. The regular payment interval may be monthly or quarterly.

The Beginner's Guide to Investing in Mutual Funds

As a first-time investor, you may find investing in mutual funds confusing. The entire process is simple if you understand how they work. Asset management companies (AMCs) hold investments from individuals to form an MF. Fund managers handle the task of managing the funds through strategic investments in equity for most returns. Investors then earn dividends or interest.

How to Invest in Mutual Funds

 Investors can invest in MFs online or offline.

Preparation

Take the following steps before investing in MFs:

1. Risk Profiling

Analyse your tolerance and capacity to handle risks.

2. Divide Assets

To reduce the risks, you must divide your money between the classes of assets. The combined investment of equity and debentures is safer.

3. Compare Mutual Funds

The performance of the MFs in the past, their investment objectives and the allocation of the fund’s assets help in choosing suitable MFs.

4. Decide on Mutual Funds to Invest

Select the MF that best suits you. You can then apply offline or online.

5. Diversify

It is better to choose a few MFs that meet your need for the sake of diversification. Then follow-up to make the most from your investment.

Invest in Mutual Funds Offline

To invest in MFs offline, visit the MF house and apply. You must submit your KYC documents and the signed application form.

Invest in Mutual Funds through MF Distributor

You can go via an authorised distributor of the chosen MF to invest in a regular plan.

Invest in Mutual Funds Online

You can invest in MFs online through the MF house or online platform. Check the step-by-step online procedure.

Visit the website of the MF house or the online platform.

Fill up relevant details (name, contact number, email id, bank details) and submit.

Submit documents (Aadhar card, Pan card) for KYC via eKYC.

On verification of the documents, you can transfer the money online

The Beginner's Guide to SIP Investment

You can invest a large amount of money in MFs. But that may not be beneficial for all as it blocks your funds. Further, MFs are subject to market fluctuations. You can invest a fixed sum of money at predetermined (monthly or quarterly) intervals. SIPs are better alternatives to first-time investors. You can start SIP investments online or offline.

Please find the steps to follow to invest in SIPs below.

Choose a fund that is right for you after risk profiling.

Create an account by signing up.

Submit the filled application form and KYC documents.

If you are applying online, fill the ECS form and offline submit a cheque for the predetermined monthly amount.

Choose a convenient date of payment. Your account will reflect a debit for the amount. 

Decide the investment tenure. 

Conclusion

SIPs are a stress-free way of entering the investment world. Investors need not worry about market fluctuation and timing. It has gained much popularity to become the Indian investor’s preferred mode of investing in mutual funds. Follow the easy steps in this beginner's guide to know how to invest in mutual funds and systematic investment plans.

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3 BHK in Powai | Emerald Isle - An address that is distinctly refined and exceptionally rare

Emerald Isle is the missing puzzle piece for home seekers in search of ready or under construction residences.

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2 BHK in Ghatkopar | Centrona by L&T Realty

L&T Realty presents a magnificent landmark in the heart of Mumbai

This extraordinary gated community with stylish and functional residences boasts of being parked within easy reach of the city’s most iconic locales, providing easy access to every corner of the city.

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Chillers System & Air, Water Cooled Chillers by Carrier Singapore

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Rohan Square | 2 BHK Flats for Sale in Mangalore by Rohan Corporation

Rohan Square is an innovative integration of residential & commercial spaces, which offers 1,2,3 BHK flats, 4 BHK Duplex & Commercial Spaces in Mangalore.

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Income by Way of Mutual Fund Dividends - Definition and Taxability

Once you have zeroed in on which mutual fund scheme to invest in, you are beset with one major decisional hurdle - which option to go for: growth or dividend.

This is where it is essential to understand the term 'dividend' in the context of mutual funds.

Is It the Same as Dividends on Stock?

Essentially, no. You might be quick to jump to the conclusion that they are one and the same since both are payouts from the profits. However, unlike an equity dividend, a return enjoyed over and above the appreciation in stock prices, a mutual fund dividend is as good as the partial redemption of your capital gains from the increase in NAV. This is the reason why the moment a fund house pays or declares dividends, the NAV of that scheme drops by that exact amount.

How Do the Funds Declare Dividends?

Akin to dividends on shares declared by companies, mutual fund dividends are also discretionary payments, and the trustees are under no obligation to report any fixed amount at any fixed point in time. Furthermore, dividends are distributed only if the fund generates realisable gains from the transfer of securities and/or receives amounts in the form of dividends or coupons. You, as an investor, are entitled to the dividend based proportionately on the number of units you hold on the record date.

Some schemes would also give you the further choice of reinvestment of such dividends. In such a case, you would be allotted additional units of the same scheme at the post-dividend NAV instead of simply receiving the money in the bank account.

Is the Dividend Option Suitable for You Over Growth?

Undoubtedly the partial payout of capital gains hinders the compounding effect that you could enjoy in a growth plan or even dividend reinvestment, for that matter. Nevertheless, receiving dividends can generate consistent cashflows if you financially depend on such realisable passive income streams. This is especially suitable if you are a retiree or need some extra financial backing on top of your salary, business or professional income. 

If you have a longer horizon, a lofty financial goal, and can afford to cut back on these dividend cashflows, a growth plan could be a wiser choice.

How Will This Dividend Income Be Taxed in Your Hands?

Tax on mutual fund dividends would be levied as per the income tax slabs and corresponding rates applicable to you. Accordingly, if your total income is below the maximum exemption limit, this income also goes tax-free in your hands. 

While crediting or paying the dividends to the unitholders, the fund houses are obliged to deduct TDS as per the newly introduced Section 194K of the Income Tax Act, 1961. This TDS is deducted at the rate of 10% for resident individuals when the gross dividend in the financial year surpasses Rs. 5000. This holds true for both Equity and Non-Equity Oriented schemes and is irrespective of the fact that the dividend is paid directly to your bank account or reinvested in additional units.

For a non-resident, individual tax deduction on mutual fund dividends to the tune of 20% (including cess and surcharge as applicable) is made in every case without any threshold. Besides, non-furnishing of Permanent Account Number (PAN) would again attract a higher TDS of 20% plus cess and surcharge.

Considering everything, it is imperative that you consider your liquidity position, other incomes and financial goals to kickstart your investment journey.

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Fixed Deposit VS Mutual Funds – Where to Invest Your Hard Earned Money

Fixed deposits and mutual funds are popular financial instruments as they both provide investors with good returns to help them grow their savings. However, the benefits offered by both of these instruments vary in terms of the investment needs of the investor. Therefore, before choosing the ideal avenue to invest your hard-earned money, it is essential to keep few things in mind. 

What is a Fixed Deposit (FD)?

Fixed deposit (FD) is an investment instrument offered by financial institutions to help investors grow their savings. They are one of the most preferred investment instruments in Indian households, with 95% of families preferring them, as they remain unaffected by switches in interest rates or market fluctuations. Hence, the returns on investor’s deposits are guaranteed.

You can start an FD with minimal deposits and choose the tenure of your deposit as per your convenience. Plus, you can opt for periodic interest payouts. Fixed deposits are ideal for senior citizens as they allow them to have a fixed income after their retirement.

What Are Mutual Funds (MF)?

A mutual fund (MF) can be described as a common pool of funds where investors invest their savings. These funds are invested as per a specific objective. The total income earned through the investments is equally distributed among investors after the deduction of incurred expenses. Professional managers manage these funds.

Mutual funds might have lock-in periods that depend on the type of fund chosen by the investor. Any gains made before the year ends are taxed as short-term capital gains. Mutual funds do not provide a fixed interest rate as they are subjected to market risks, but the interest rate is generally much higher than that of fixed deposits.

Fixed Deposit VS Mutual Fund - The Top Differences

The FD vs mutual funds debate has been raging on for decades. Fixed deposits have been prevalent among Indian households for their guaranteed returns. However, presently, investors are showing an inclination towards mutual funds since FD interest rates have slumped from their highs a few years earlier.

On the other hand, mutual fund performance has been remarkable in recent years due to the availability of tax savings. Plus, they started giving more returns with liquidity. These are the things that made so many low-risk FD investors change their minds. Both fixed deposits and mutual funds come with benefits and disadvantages. Take a look at the following facts to choose the ideal investment avenue for your savings.

Withdrawal     Process: The     first point to consider while finding out about FD vs mutual fund is the difference in the withdrawal process. If     you wish to withdraw from a mutual fund, you can do it free of charge     after a given point of time. If you withdraw before the stipulated time,     the charges levied upon you will be 1% in the form of exit load. However, if a fixed depositor wishes to make a     withdrawal, they will have to break their fixed deposit and pay the     penalty for the same.

Expenses: The management of mutual funds     involves certain charges that get deducted from the fund. On the other     hand, fixed deposits require no additional costs throughout the initiation.

Taxation: Mutual funds of all sorts are     subject to long-term and short-term capital gains tax. STCG is charged at     a rate of 15%, and LTCG is charged at a rate of 10% (for earnings above     Rs. 1,00,000). Fixed deposits are subject to 10% TDS (on interest earned     above Rs. 10,000 over a financial year).

Risks: As mentioned earlier in this article, mutual funds are subject to market risks whereas, fixed deposits carry no risks at all. Market fluctuations do not affect fixed deposits, unlike mutual funds. The risks involved in mutual funds differ from fund to fund. Hence, mutual funds might not be very ideal for those who do not want to take risks. But, it’s     important to remember that though mutual funds are risky, the interest     rates are way higher than fixed deposits.

Conclusion

Fixed deposits assure guaranteed returns, while mutual funds are subject to market risks. But, if you invest according to your risk appetite, mutual funds can be supremely beneficial. Great things involve a little bit of risk. So, make sure to evaluate your financial goals before choosing an investment instrument.

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Crescent Bay is the marquee project developed by L&T Realty in collaboration with Omkar Developers in the heart of South Mumbai Parel.

The ultra-luxurious gated community is a design worth marveling at, with 6 towers meticulously designed to form a crescent, enabling a lifetime of uninterrupted east and west panoramic views. The premium gated community is home to some of Mumbai’s most influential residents, providing you with the opportunity to lead the lifestyle of dreams, in the city of dreams. The towers are also equipped with a plethora of amenities to fulfill your body, mind and soul, from a swimming pool, to a unique Skydeck that sports a jogging track and tennis court 300-ft above the sea. Crescent Bay offers its residents a balanced, no-compromise life, with elegant and luxurious homes.

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Know what are the different types of Debt Funds?

A debt fund is a type of mutual fund that invest in fixed income securities like government bonds, money market instruments. There are various types of debt funds such as liquid funds, dynamic funds, gilt funds. Visit us to explore debt funds types.

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Residential Projects In Navi Mumbai | Seawoods Residences - Navi Mumbai’s One & Only Landmark

Built on the concept of futuristic living, L&T Seawoods Residences, an upcoming project in Mumbai, is the most modern gated community in Navi Mumbai.

Developed on India’s first Transit Oriented Development and located alongside Seawoods Grand Central Mall, offices, Seawoods Station and a just couple of kms away from Palm Beach Road, the property is well connected to social infrastructure through wide roads.

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4 BHK in Powai | Emerald Isle - An address that is distinctly refined and exceptionally rare

Emerald Isle is the missing puzzle piece for home seekers in search of ready or under construction residences. The homes are meticulously designed 2, 3, & 4 BHK apartments that ensure its residents lead a life of harmony. Tucked away in nature and equipped with nature, truly make Emerald Isle Powai’s Finest Gated Community. 

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Interested in joining Boots Opticians as an Optical Consultant?

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Know how can one withdraw his money from Mutual Funds?

One of the biggest advantages of mutual funds is liquidity and it's ease of access or conversion of an asset into cash. Once the redemption is complete, funds are transferred within 3 business days.

To know more read full article on mutual fund redemption

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Know what EY Digital Tax strategy and transformation can do for your business

EY’s Tax Technology and Transformation team in India is organized to help you navigate the digital agenda in the tax domain, offering a wide range of technology-based solutions to make your tax function future ready.

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Financial Advisory Services – EY India

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Digital Transformation Consulting Services by EY India

EY Digital Consulting helps businesses transform & evolve quickly to seize new opportunities, scale successes and mitigate risks that digital transformation creates.