Obviously, investing in a fund involves giving money to the fund company, which allots you mutual fund units in exchange. There are two routes you can take for this:
- Through a fund distributor (who could also be called a mutual fund advisor): Distributors are intermediaries who are appointed by the funds for marketing their funds and for facilitating the transaction. Some (and only some) may also be knowledgeable enough to give you investment advice. A distributor can vary from a large outfit like a bank, down to an individual working alone. Distributors are paid a commission by the fund and are also permitted to charge you ₹100 per transaction.
Distributors must be officially qualified and registered by the Association of Mutual Funds of India (AMFI). At the website https://www.amfiindia.com/, you can verify whether a particular individual or organisation is authorised to act as a distributor. You can also locate distributors by pincode. - Directly from the fund: You can also deal directly with each fund company whose funds you would like to invest in. Details are specific to each company and you can find out more on their respective websites. These are separate plans under each fund that are called 'Direct' plans, as opposed to 'Regular' plans. Since there is no commission to be paid, returns in Direct plans are somewhat higher, although one has to put in some extra effort. You can generally do all your investing through a single distributor but in the case of direct, you must deal with each fund separately.
- Online investing: Online investing is now widely available, both from distributors and for the direct plans. Obviously, you deal through the distributor's website in the first case and through each fund's website for direct plans.
- Know Your Customer (KYC): Investing in a fund involves going through a KYC (Know Your Customer) process, much like other financial transactions by which the fund company verifies that you are who you claim to be. KYC is a legal requirement under the Prevention of Money Laundering Act. It is supposed to be a one-time process that is common to mutual fund investing, stock investing and some other types of transactions.
If you are investing in a regular plan, the distributor will facilitate it. If you are starting off as a direct investor, you should visit https://www.cvlkra.com/, which is an authorised KYC registration agency.
Questions
- To invest in a fund, investors must go to the fund company's office
- True
- False
- Direct funds are those which investors buy directly from a fund distributor
- True
- False
- Generally, your fund returns are better when you invest directly, rather than through a distributor
- True
- False
- Generally, your fund returns are better when you invest online, rather than through a paper-based form
- True
- False
- Under the 'Know Your Customer' (KYC) norms, what do you have to prove to the fund company?
- Your income level
- Your past track record as an investor
- Your identity
This article was originally published on February 18, 2015.
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