Opening my first mutual fund account: What you should know

When I first started working 10 months ago, I had planned on having two different bank accounts - one for savings and one for daily payments - to manage all my finances. I wanted financial management to be simple, and investing did not seem simple. I was reluctant to start a mutual fund for these reasons:

• There's not much to save when receiving a fresher's salary, less still to invest.
  
• There are over 1,600 mutual funds in India. It's hard to choose when you don't know anything about the industry.
  
• KYC processes are dreadful.

The two-account plan should have worked - except bank servers have a persistent habit of being down. Soon I was using my savings to make payments and blurring the lines between the purposes of the two accounts. I reached a state where divine intervention was required.

Naturally, my parents stepped in. Upon strong insistence, I agreed to start a mutual fund. The first step was opening a mutual funds account. There are multiple options you can choose to open an account. You can either invest directly through the AMC's website or a third-party brokerage platform like Zerodha or Groww. I opted for the latter. This was the easy part, it was the next step I was dreading the most - KYC.

I decided to be a champion and soldier on. If prior experience with banks and passport offices was any indication of what was to come, then I had to set aside any amount of time between 3-6 days for verifying, re-verifying and sobbing into my identity and address proofs. I started the process - and half an hour later I was done. In this amazing age of technology, the Government of India has initiated a Central Know Your Customer (CKYC) facility. Not only is the entire KYC process taken care of digitally from wherever you are, you also only have to do this process once. Then you're free to invest wherever you wish. The world is your oyster.

The next step took longer than KYC - deciding which fund to invest in. Usually, for beginners in equity investments, Value Research advises investing in aggressive hybrid funds. However, considering my age, I was told the younger you are, the more risk you can afford to take. A longer investment just means more room for compounding to take effect. I thus came upon the decision to diversify my portfolio across small-cap, mid-cap, and flexi-cap funds. Moreover, mutual funds have the option of investing sums as less as Rs 500. However much I could save in my account previously, I could also invest easily.

The final step of setting up your first mutual fund is deciding on the right investment strategy for you. There are two different transaction types to choose from - systematic investment plan (SIP) and lump sum payments. I chose SIP. It auto-debits fixed amounts from your account at a frequency of your choice - daily, weekly, monthly or quarterly. Having SIPs at a regular frequency helps smoothen out market volatility as well. You buy more when the market is down and less when the market is up.

And that's it. That's all it takes to set up your first mutual fund. Surprisingly painless, borderline effortless. Once your SIP is in place, it runs like clockwork. There is no constant tracking or stressing over market swings. Just money quietly working in the background while you go about life. Turns out, investing isn't the complicated puzzle I thought it was. If I can do it, you definitely can.

Also read:
How to invest in mutual funds
How to invest in an SIP?
Your first fund: Stop waiting for the "perfect investment"

This article was originally published on March 15, 2025.