By Anurag Singh
This comprehensive answer could help all those who are keen to invest in Mutual Funds (irrespective of SIP mode or as bulk investment) but don't know where to start. All you need to understand is the following:
1) Get your KYC done: The first step is to get the Know Your Customer(KYC) completed. This is a one time exercise post which you can invest in any mutual fund in India online/offline.Visit Cams Investor Service Centre, Mutual Fund Distributors in India, camskra.com to check if your KYC is already done. If you are NOT KYC compliant, this can be done by vising the nearest KYC centre (the above link to CAMS website has all details) with your original documents (PAN card, address proof,photograph & KYC form). This process might take a month or so. Those investing thru banks/broker houses may not need this as the bank acts as a broker & gets the KYC done. This however is a very very expensive convenience that you don’t want to avail, ever. You can’t invest in direct plans if you invest thru broker or bank/distributor.
2) Plan your funds: Don't make the mistake of picking the funds just as you broker suggests. In all likelihood, you will get stuck in closed ended or newly launched high cost funds. This obviously happens as the broker will sell you the most expensive funds. Where do you think his commissions come from ? So have a strategy in mind by consulting a "fee only" financial planner. If you don't know of one, you can follow the following strategy.
3) Investment strategy: Picking up 5 different funds is not diversification if all of those belong to the same category. Broadly there are 5 categories of funds. Large Cap, Flexi/Multi Cap, Mid Cap, Small Cap & ELSS. There is also ETF if you want to play INDEX strategy & want to have very low charges on your fund.
4) Your portfolio: So here is what you can do. The following funds have been chosen basis both qualitative & quantitative analysis by Advice My Money team.The level of risk you can undertake to get higher returns will decide which category you should pick or avoid. Both risk & return increase when you move from large cap(low risk & lower potential returns) to small cap(highest risk & highest potential returns). A long term view(5 yrs plus) is recommended for riskier funds like small caps, longer the better.
5) Mode of investment - SIP or Lumpsum: Now you can choose the SIP method if you want to contribute a fixed sum out of your income each month. What SIP does is that it averages out the investment price for you as you invest each month. So you buy expensive when the market is high but you also buy cheap when the market is low. So for the year, you average out the investment & don't get beaten by the poor timing issue where most retail investors have burnt their fingers. If you have lump sum money, then timing is very important. You might get it right by chance but the losses are high if you get it wrong. So our recommendation for retail investor is to invest by the SIP mode, unless of course if you have the benefit of professional “fee based” investment adviser. There are various neutral platforms available now to invest in direct plans. ET Money, PayTm, PaisaBazaar are some of them. Take your pick but make sure that youy pick only the direct plans.
6) Buy DIRECT & keep your eyes open and track your investments: Always buy DIRECT PLANS. Your broker or bank relationship manager is the product seller. Please don’t take him to be a financial adviser. There is no substitute to keeping your eyes open and not trusting anyone with your investments. The sellers don’t care once you invest and move on to others. Be watchful and review portfolio every 6 months to 1 year. It's your money and nobody cares about it more than you!
7) Remember the most critical virtue in stocks investing: Mutual funds are indirect investment in equity/stocks. Therefore, you should possess the three most critical virtues of stock investing at all times. These are: Patience, patience & patience. Don’t expect quick magic, the stocks are fairly valued in the near term. So it takes time & patience to make good money. Believe in the India story and sit tight.
In case of any doubts or concerns, write to me at firstname.lastname@example.org or on twitter @anuragsingh_as
Honest, Unbiased & Simplified, as always.