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How to invest in Mutual Funds – Demat Account required?

How to invest in Mutual Funds – Demat Account required?

What exactly are the mutual funds? How do I invest in mutual funds? Is Demat account required to invest in Mutual Funds? How to start Systematic investment plan (SIP)? These are the most common questions asked to advisors when they meet new investor or in today’s Era of internet these are asked on different forums and blogs.

Since its inception in India, the mutual fund industry has developed itself in different ways. From public sector companies to private companies, from physical transactions to online, from bank intermediaries to individual advisors. One can easily understand the increasing popularity of Mutual funds in India by looking at the Industry AUM but there is long way to go.

How to invest in Mutual Funds

With the technological advancement and increased awareness of Mutual fund as an investment tool, people have started looking for the ease of transaction in mutual funds. (I belong to old school of thought – where ease of transaction is actually a big negative while investing in volatile asset like equity mutual funds) In this post we’ll discuss how an individual can invest into mutual funds with the different available options in India.

But before investing one should learn about basics of mutual funds & in that FundSketch Mutual Fund Blog Can Help.

Investing / Buying Mutual Funds

Through Banking Channel 

It is mandatory to have a bank account to invest into mutual funds (if investment amount is less than Rs 50000 – you can even invest cash) and bank itself is a mutual fund agent, so one can just walk in to the branch of their bank and can ask if they sell the required mutual fund scheme. Mis-selling is very high in banks so Be-Aware at every step.

Buying Mutual Funds Through Demat Account 

It’s a very common question that I hear every other day – Is Demat account required to invest in Mutual Funds? or Do I need Demat account for Mutual Funds? or Should I open a Demat account to invest in Mutual Funds? I am not sure why this myth is there – maybe because Demat accounts are used for buying and selling equity shares & people find some similarity. Its not compulsory to have Demat account to invest in mutual funds but in recent years with the technology advancement people can buy mutual fund units through demat account. Not only ETF, even plain open ended funds are also available to invest. Investor is charged some small amount at the time of transaction. The advantage of using this platform is that all the investment can be managed from one account.

Through Online Portals 

There are many online portals available where one can open an account and buy mutual funds. Initial there will be some paper formalities – you have to submit some form, Pan No. and a cancelled cheque copy to verify the bank details. Once all things are done, one can buy any scheme as they are brokers of almost every mutual fund company. The investor also has to check if his/her bank branch provides facility of ECS/auto debit or not. If one is the first time investor then they also provide additional facility of completing KYC process at a nominal cost. It’s more like a demat account, only difference is that one cannot buy equity shares through these portals. Investors can get ease of investment but in most of the cases no personalised advice. AMFI is also coming with similar platform for all distributors & investors.

Through Registered Individual Mutual Fund Advisor 

There are over 75,000 registered AMFI (Association of Mutual Funds in India) advisors in India but less than 10000 are actively selling mutual funds. One can easily find the nearest Mutual Fund agent by searching them on AMFI Website. The advantage of investing through agent is that he/she is available at your doorstep. The agent helps you in filling the form; he makes you aware about the changes in the market, informs you about new schemes and also submits your form either to the AMC office or at transfer agent’s office like CAMS and KARVY. They also help you in recognising the good and the bad schemes but do check their qualification, experience & expertise.

Through AMC’s Portal/Office

Every Mutual Fund Company in India is providing this facility to directly invest through their website. Investors can also invest in Direct Schemes where overall expense ratio is lower by .1% to .5%. All an investor need to do is to do a physical transaction for the first time. Once the folio is generated then investor can transact online for further investment. Investor can register with their email id and mobile no. on respective website. An online pin is generated which is used for transaction. Right now there is no single platform to handle this & there is zero advice.

Through transfer agents like CAMS, KARVY, etc.

Do not worry if you don’t have a trusted advisor & don’t want to personally visit every AMC. For investors who wish to do all by themselves then CAMS and Karvy are for them. These offices act as transfer agent between investor and company. These are the point of contact where Investor can visit and submit the forms. All they need to do is to download the forms and submit them duly filled with the cheque and other required documents. This is also beneficial for those where AMC offices are not located. Investor can also request for consolidated statement and for other non-financial services at these service points. (Karvy is also Mutual Fund Distributor – so make sure you reach Karvy Computershare office)

Must Read6 Dumb ways of selecting Mutual Funds

So these are the different ways through which an investor can buy mutual funds. Please keep in mind that one should select the method from the above option on the basis of cost, convenience & advice. Also one should consult his/her financial advisor before selecting any method.

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  • Dr Amol kadam May 2, 2015, 7:02 pm

    Is nifty bees is better investment option to SIP in mutual funds? I have read many articles who claim that as 1.nifty bees have very less expense ratio as compared to mutual fund schemes. 2. As scheme contains shares of nifty companies we get safety as well as diversification also.
    & 3. They pay dividend also. So if SIP started in nifty bees then along with rupee cost averaging one can get above benefits also which lack in mutual funds SIP. Also one gets rid of choosing right mutual funds scheme for hundreds of the schemes.
    Kindly guide us.

  • Anil Kumar Kapila May 3, 2015, 8:48 am

    I prefer to go to the office of the fund house directly for my investments in mutual funds.

  • Nisha Sahaay May 20, 2015, 2:32 pm

    Great post Sir, A perfect guidance for beginners who are thinking to invest under mutual fund. Thank you so much for sharing such a informative post with us.

  • Dharmesh June 25, 2015, 12:36 am

    I do believe this is an excellent website. Money and freedom is the greatest way to change, may you be rich and continue to help other people.

  • Tapan April 5, 2016, 2:44 am

    I am planning to invest in mutual funds through transfer agents. Which one is better,
    1) Karvy
    2) CAMS
    3) Fundsindia
    Pls advise.