Ready to invest in a mutual fund? Here's a step-by-step guide

Now that you have adequate knowledge of mutual funds, it's time you get started.

Don't worry, it's a reasonably straightforward process.

Step 1: KYC process

Mutual Fund KYC is a one-time activity.

The KYC process is free and requires your passport-sized photograph, PAN and Aadhaar Card. There are two ways you can complete your KYC process.

• Offline: Download the KYC form from the website of one of the following options:
  - Fund houses (AMCs)
  - Association of Mutual Funds in India (this is the mutual fund industry's trade body)
  - Registrar and transfer agents (firms that help AMCs with record maintenance) such as CAMS and KFintech.

Please fill out the form and submit it to your fund house's office or any RTA.

This process generally takes three to four working days.

Once approved, you can start investing in mutual funds.

• Online: You can get your KYC done by filling out an online form on the website of one of the options mentioned above.
  For instance, here is the link to the online KYC of ICICI Prudential Mutual Fund.
  You need to provide your registered mobile number and Aadhaar number for verification via OTP. The details are matched with your PAN Card for further confirmation.
  Your in-person verification is done via video call, where you have to show your original identity and address proof. Once the verification is done, you are all set to invest in mutual funds.

Step 2: Choose between 'direct' & 'regular' mutual funds

When you go through the list of mutual funds, you'd see two types of the same fund.

One's a regular fund, and the other is a direct fund.

So, which one should you invest in?

Regular plan: If you are unsure which mutual fund to invest in, you should take the help of a broker or a distributor. They take care of all the formalities and do the transactions on your behalf.

This route of investing in mutual funds is taken via 'regular' plans.

Direct plan: If you know which mutual fund to invest in, opt for the 'direct' route. You can buy the mutual fund directly from the fund house's website or via various online platforms. Payments can be made online to complete the transaction.

Both plans are exactly similar, except that a direct fund charges a lower expense ratio (lower by around 0.75%-1% per annum in the case of equity funds).

Aprajita Anushree

Since you are not taking the help of a broker or a distributor, you are saving some money on commissions.

However, don't invest in a direct fund just for the sake of it.

Go through the 'regular' route if you are not confident about which mutual fund to invest in. It's better to pay a little more than to invest in a poor mutual fund.

Eventually, as you gain knowledge, you can start taking a 'direct' route.

Step 3: Choose between 'IDCW' and 'Growth' option

'IDCW' option: If you opt for an IDCW (Income Distribution-cum-Capital Withdrawal) plan, you will keep getting some portion of the profits your investment makes from time to time.

However, the quantum of payout and timing is as per the choice of the AMC.

Also, the amount paid out is subject to income tax because on a financial level, it is treated as if you have withdrawn that money from the fund.

'Growth' option: Here, there are no periodic payouts.

Your money remains fully invested until you decide to exit, in part or in full.

Which is the better option?

Keep it simple and always opt for a 'Growth' plan.

It is tax-efficient and gives you more control over when and how much you redeem.

What is your ownership claim?

After investing in the right mutual fund/s, you will receive a unique folio number. It's just like a bank account number.

You'll also receive a confirmation email and/or SMS specifying the units allotted within five business days of the initial investment transaction.

Here are a few best practices

• Always add a nominee
  It will hardly take two minutes but would enable a smooth transfer of assets in the case of an unfortunate event.
  Without nomination, only the investor's legal heir(s) can make a claim. That, too, after proving their legal heirship, which can be a tedious process.

• Provide your email address while making an investment
  This will help your fund company correspond with you and digitally send updates, periodic account statements, fund fact sheets, etc.
  Also, fund houses may send you an OTP on your registered mobile number and/or email address for certain kinds of online transactions.
  Last but not least, resources like CAS aggregate your fund investments across all AMCs based on the provided email address (read more about CAS in chapter 8 ). So make sure you fill up your email address while investing in mutual funds.