How do I start investing in mutual funds [ELI5 series]

So, you have thought about investing in mutual funds but don't know how to start. Congratulations, because getting started up is the hardest part.

For investing in mutual funds, you will have the following options:

A. Invest through an agent. They can be individuals, someone living close to you, OR they can be big institutions like banks or Fundsindia.

• The advantage is that they will do everything from their own side and you will just have to sign few papers and that is it.

• Disadvantage is that you will be investing into regular plans of the mutual funds and lose out on the cost benefit of the direct funds. The regular funds pay back some fees directly to the agent.

Steps: Call your agent and sign the forms.

B. Invest directly with the AMC.

• Advantage is cost advantage.

• Disadvantage is that it can be a bit tedious. I mean just look at those steps.

Step 1:

If you are first time investor then you will have to fill up two forms and a cheque. I will advise you to select a single fund to start up the process and then add more funds as per your needs. So, start with a basic equity fund and with 5k amount (the minimum needed to start up) and then start your SIPs later on.

If you are ok, then you can start up the SIP from the word go too. That will add up one more form (I mean 3 forms).

Form 1: KYC form -

1. You will need an identity proof - use PAN card - self attested.

2. You will need an address proof - use any of the available one.

3. Get the intermediary seal-stamp from your banker/RM/Personal Manager. No need for any agent (although they are allowed to do so). On the form as well as the address proof.

4. You will need to do an IPV (=in person verification) at the AMC/CAMS/Karvy centre, so you cannot send by post.

   Any future change in KYC details will have to be done with IPV mostly.

   The bank details will be set according to the first form you fill. If you need to change / add another bank account, you will have to send by post, a cancelled cheque and the relevant form.

   Call the AMC’s toll-free number and clear your doubts, if any.

Form 2: Common Application Form for Equity funds – you can get a copy from the local centre or you can download and print the relevant pages (not the whole thing).

STEP 2:

Get the forms and a cheque to the local AMC office / Karvy / CAMS centre and submit. Don’t forget to tick mark the online access section and give your email id and mobile number. Do call up their toll-free number to confirm the documents needed before going there. I have never been able to get things done in a single go – try to break that record.

STEP 3:

Once your account has started up and you have been allocated the units of your mutual fund, start the online access. In most cases, they will send a physical PIN/HPIN/Password in post, which may take 7-10 days, but once you have got that, investing will become very easy.

Once you are an existing investor in any mutual fund company, you can start a new fund just by filling up the form with a cheque. No need to do KYC again (till SEBI re-requires it – they are pathetic sometimes.)

For Franklin Templeton AMC, you can have a look at this page.

EDIT: A recent article from ValueResearchOnline on the same subject - https://www.valueresearchonline.com/story/h2_storyview.asp?str=28708

Things to Note:

• When one opens an account with an AMC, a folio is assigned to the customer.

• Often, direct and retail plans can be purchased through the same folio. So, you could, in theory, open an account + folio through an agent. At a later point in time,

  • when you are comfortable doing your own research in selecting the funds,

  • when you are knowledgable in reallocating your assets among funds,

  you could invest via the direct plans through the same folio. There are a few exceptions - sometimes you may need to open a new folio with the same AMC. Franklin Templeton India may require you to do this, if your bank account is not captured correctly in the folio; your agent/distributor may have used a separate account during registration for handling payments and redemptions.

• KYC is a one-time activity. Once you complete the rather laborious KYC process, your PAN number is registered in a central database at one of the KRAs (KYC Registration Agency). Opening an account in a different AMC does not require a repeat of the KYC process. You may be required to provide proof of KYC completion, so if you receive a KYC letter from any of the KRAs - NDML, CAMS, Karvy etc., ensure you store it safely.

• If you don't receive a physical copy of the KYC letter (especially if you applied through an agent and didn't receive one), you could ask the KRA for a digital copy. As far as I know, NDML provides one, if requested.

• The physical or digital copy of the KYC letter may not be required during subsequent account openings - some AMCs verify the KYC status during registration, with the KRAs. Some AMCs are now allowing for online registration of accounts with no submission of documents, provided you completed your KYC. But others may not be well integrated with the KRAs.