Easy steps to help the lay investor get started investing in mutual funds

MFs present a great option if you aren't confident about investing in stocks and other asset classes on your own. But you must consider certain factors before choosing a fund house or scheme

Alright, so you're tempted by the great returns the stock market and other asset classes have to offer. Trouble is, you don't know these markets well enough and don't want to end up burning your fingers. This is where mutual funds present a great investment alternative that offers a wide range of asset classes--stocks, debt, gold, real estate. By investing in an MF scheme, you are transferring the task of earning good returns on your money to a fund manager attached to the asset management company (AMC).

However, even here you must choose your fund house or scheme carefully, based on a host of internal and extraneous factors that will, or ought to, determine your choices. Here are five steps you may want to take before you enter this space:

Step 1: Begin with risk profiling. Make an assessment of your risk tolerance and appetite. This, in other words, refers to your ability and willingness to take a loss when the market is down.

Step 2: Asset allocation. It is always prudent to spread your money over various asset classes. Don't put all your eggs in one basket. This way you will be able to offset the poor performance by one asset class with the better performance of another.

Step 3: Identify the fund houses and schemes you want to invest in across asset classes. Check the previous performance of each fund/scheme and map it with your investment goals.

Step 4: Once you have created a shortlist of the funds you think match your personal financial goals, you’re good to start applying offline or online.

Step 5: Once in, diversify your investments and review your portfolio periodically to assess whether or not you want to rebalance it.
 
Investing in MFs online

Investing in mutual funds online is fairly simple and can be done in any of the two following ways.

1) Create an account on the AMC's official website: The website of every asset management company (AMC) provides the list of schemes across categories. Fill out all the required information in the online application form and submit it in accordance with the instructions on the website.

The Aadhar Number and PAN are all that are required to complete the KYC process online (e-KYC). At the backend, the information you provide is checked, and once that is done, you can start investing.

2) Do it on the mobile app: AMCs make it easy and quick for investors to invest in mutual funds through mobile apps. Third-party mutual fund aggregators offer a platform for investing in mutual funds, and the AMCs have mobile apps.

The app lets the investor buy or sell units, view account statements, invest in mutual fund schemes, and check other relevant portfolio details. Additionally, investors can put money into a variety of funds offered by various fund houses.

Most AMCs offer the offline investment option too.
 
How are mutual funds managed?

The AMC pools the mutual fund investments of numerous individuals with similar investment goals. The fund then invests all this money in various assets such as bonds, stocks, money market instruments, commodities like precious metals, and other assets.

Mutual funds are typically managed by financial professionals called fund managers, who make investments in line with the fund's specified investment objective.

The annual management fee that individuals pay to have their investments managed is what the AMCs charge as an expense ratio. As an investor, you could opt for regular dividend payouts to meet your income needs or could automatically reinvest the sum and see your corpus grow.

 
Summary: Noted author and investor Robert Kiyosaki has often exhorted people to make money "even while you sleep". Mutual funds can go quite some way in helping you achieve this goal provided, of course, that you make the right choices from among the plethora of options available in this space. Also remember, MF investing isn't about becoming rich overnight. One typically starts off slowly and watches his or her investment balloon over time.