Read the Advisory Warning on Investing in Mutual Funds for BeginnersDisclaimer: I am not a financial expert and not even close to it. All of these information is consolidated and balanced to give an overview of finance and savings to make people like you and me, financially literate. Whatever issues and mistakes are there, kindly point them out and let me know by email, twitter or FB. I will try to add as much sources as possible. If anything is missed, kindly let me know.
Advice: Most of the advises from share market gurus on investing in mutual funds are to make money for them and not for you. Never trust anyone with your money and whatever decisions you take should be backed up with research and not rumors. Otherwise you will lose all the money for sure. DO NOT SPEND MORE THAN WHAT YOU CAN HANDLE. Avoid Greed, when it kicks out say this statement to yourselves; "Mutual fund investments are subject to market risks."
Note: I got many information on mutual fund investment in online websites, friends, finance managers, Reddit, Facebook groups, Slack communities, Quora, telegram channels, and what not. This is a long consolidated post with all this information from many sources. Read or not read fully is your choice. This will help you for sure. I will adding more information as my journey with Mutual funds evolves.
What are Recommended Actions to be Taken Before Investing in Mutual FundsBefore starting out SIPs, STPs and other investments in Mutual Funds, do the following first.
1. Create an emergency corpus - Emergency fund should be your 6 months salary.
2. Purchase adequate term plan if you have dependents - Term plan is only one claim during the term of policy or no claim at all. Term Plan must be at least 15-17 times of your yearly income or 500 times of your monthly expense. Review the cover amount at own marriage, and at every child's birth, as well as for home loan. Generally Bank fd rate is 6.5%, so your family can deposit that money in the account.
3. Purchase adequate health cover - Health Policy can be like no claim for few years, then claims, no claims, claims, no claims and so on, till your death - Best Family Health Insurance Plans in 2018
4. Identify your future goals - Checked.
Now start thinking about Asset Allocation.
- Have a nominee like brother/sister/ son/ daughter/parent in all your mutual fund investments.
- Always go with open ended funds and direct growth option
- Create a Netbanking account with UPI and use that for transactions instead of cheque.
- Update same Name, address, email id and mobile number in your pan, aadhar and bank accounts and link everything.
You need to do KYC to do investment in any type of mutual funds. You can do eKYC without doing any offline paperwork.
A Beginners Guide On Know Your Customer [KYC] and Electronic Know Your Customer [eKYC] OnlineIn order to invest in any of the mutual fund at any of AMCs, you need to do a KYC or verify your identity as a customer. The first step in order to invest in Mutual fund is to link Aadhar and PAN Card.
- Link your aadhar with mobile number and email id.
- Link AADHAR with PAN card in Bank.
- Go to SBIMF and Do eKYC
You can also go to any Mutual Fund houses or AMCs and fill the KYC form and submit all related documents. I did via SBIMF easily. You can fo it via CAMS / KARVY website and do eKYC using AADHAR. I went and did eKYC in SBIMF and later HDFC MF and dsp blackrock automatically fetched the information. For investing in HDFC or CAMS you need to have a cancelled cheque.
Quick links of RTAs to link AADHAAR to your Mutual funds
CAMS - Link AADHAR
KARVY - Common Aadhaar linking across Karvy Serviced Mutual Funds / AIF - Submit Before 31st March 2018 to avoid freeze of MF folios
FRANKLIN TEMPLETON - AADHAAR NUMBER LINKING WITH FRANKLIN TEMPLETON INVESTMENTS
SUNDARAM BNP PARIBAS FUND SERVICES LIMITED - Fund Services
A Beginners Guide to Select a Mutual Fund Investment PlatformNow that you have successfully done eKYC, let us find a good MF investment platform. You can directly go to any AMCs and invest or select a mutual fund investment platform. The popular one is myCAMS.
CAMS manages 13 AMcs.
- Birla SunLife.
- DSP Black Rock.
- HDFC Mutual Fund.
- ICICI-Prudential Mutual Fund.
- IDFC Mutual Fund.
- IIFL Mutual Fund.
- Kotak Mahindra
- Mahindra Mutual Fund
- PPFAS Mutual fund.
- Tata Mutual Funds.
- Union Mutual Funds
Other Direct mutual fund portals are Kuvera, Investza, Mymoneysage, Jama, Wealth Trust.
I chose KUVERA for investing in Mutual funds because it is free and offer only direct plans. Join using my invite code UZ2Q9. Well, I will not get any money only coins for unlocking features in the platform.
What Type of Fund I should To Invest In Mutual Funds Online as a Beginner?
In Regular plans, the Mutual Fund house, or the agent takes commission or fee from your investment. This will decrease your Net asset value (NAV). Think in terms of some guy making money out of your investment without you knowing about it. If your maturity amount is 1 crores, you may be getting 75 lakhs of NAV and 25 would have gone to the agent.
In direct plans, you are saving the money increasing your NAV. Always opt for direct plans.
Dividends - They are parts of profit generated by the company. The profit is divided as per the number of shares the company has and distributed to share holders. This means the company will pay you a sum of amount every year. This your returns. Eg: With Five lakhs investment over a period of 5 years, with 12% minimum interest, you will get 6661 Rs per month as dividend.
Growth - They are dividends generated from the shares which are automatically reinserted as investment. The money that the company pay you as dividends are used to buy more shares. This will increase your NAV.
More things to consider as a beginner
Open ended fund - In open ended fund you can close, switch funds anytime.
Close Ended Fund - In closed ended fund, there will be lock out period and the mutual fund house may charge exit and entry charges.
Consistent Past Returns - Check the consistent returns given by the funds to the investors. That way you can see the performance of the fund. Following is an example of the returns given by some funds in the previous years.
You should go for Open Ended Direct Growth Fund that provided good consistent returns in the past.
How to Get a List of Mutual Funds and their Returns in a five year periodFreefincal has created an amazing excel template consist of all the mutual funds and their returns of a five year period. This template can be used as Mutual Fund screener for beginners.
How Many Mutual Fund Schemes are there?
How Many Mutual funds Categories are there?
- Large Cap - An open ended equity scheme predominantly investing in large cap stocks.
- Small Cap - An open ended equity scheme predominantly investing in small cap stocks.
- Mid Cap- An open ended equity scheme predominantly investing in mid cap stocks.
- Diversified Equity or Multicap - An open ended equity scheme investing across large cap, mid cap, small cap stocks
- Thematic - An open ended equity scheme investing in specific sector. Eg: Infrastructure, Agriculture, FMCG, Pharma & Healthcare, Banking & Finance, Technology.
- ELSS - An open ended equity linked saving scheme with a statutory lock in of 3 years and tax benefit.
- RGESS - Rajiv Gandhi Equity Savings Scheme or RGESS is a an equity tax advantage savings scheme to invest and claim a tax deduction of up to Rs 25,000 under Section 80CCG of the Income Tax Act.
- Arbitrage & Arbitrage Plus - An open ended scheme investing in arbitrage opportunities.
- Debt Long Term
- Debt Short Term
- Credit Opportunities Funds
- Floating Rate Debt - Short Term
- Floating Rate Debt - Long Term
- Ultra Short Term Debt
- Ultra Short Term Debt - Institutional
- Ultra Short Term Debt - Super Institutional
- Gilt Short Term - An open ended debt scheme investing in government securities across maturity
- Gilt Long Term - An open ended debt scheme investing in government securities having a constant maturity of 10 years.
- MIP Aggressive
- MIP Conservative
- Liquid Institutional
- Liquid Super Institutional
- International / Global Commodities
- Gold ETF- Invest in Gold exchange-traded funds.
- Fund of Funds - Equity oriented
- Fund of Funds - Hybrid oriented
- Fund of Funds - Debt oriented
- Fund of Funds - Commodity oriented
- Capital Protection Funds
- Debt Oriented Hybrid Speciality Funds
- Equity Oriented Hybrid Speciality Funds
- Retirement Fund - An open ended retirement solution oriented scheme having a lock-in of 5 years or till retirement age.
- Children’s Fund - An open ended fund for investment for children having a lock-in for at least 5 years or till the child attains age of majority.
- Index / ETFs - An open ended scheme predominantly investing in securities of a particular index (which is being replicated/ tracked)
- FoFs (Overseas/ Domestic) - An open ended fund of fund scheme investing in the underlying fund- 95% of total assets.
Guide of Modes for investing money in mutual funds
Systematic Investment Plan [SIP]
You can use a SIP calculator to find out the return you will get at the end of the period. Use SIP calculator of valueresearchonline. Go to teh website, select fund and scroll down below to see the SIP calc. Select MF house and the fund and start calculating.
Systematic Transfer Plan [STP]
Systematic Withdrawal Plan [SWP]
How to Create an Experimental Portfolio in ValueResearchOnline
I started with SBIMF to do eKYC. I have done eKYC and then went to DSP Blackrock to start my mutual fund investment journey. One of my friend suggested me DSP blackrock - Natural Resources and New Energy Fund - Direct Plan (G). I put a 1000 Rs in it and started my MF investment journey.
Later I realized that I need a platform to sum up all my plans and I selected Kuvera for it. I tried using Cams but it was not manageable and not user friendly. Kuvera helped me to create my own financial goals and suggested appropriate funds. I did not select them. Check the platforms and charges for investing in mutual finds.
I used Plumbline funds selected by Freefincal and found out returns and ratings from money control and value research. I invested in 4 funds first and tried diversifying.
1 DSP BlackRock Natural Resources and New Energy Fund - Direct Plan (G) Thematic
2 Aditya Birla Sun Life Tax Plan - Direct Plan (G) ELSS
3 HDFC Balanced Fund - Direct Plan (G) Balanced
4 Quantum Liquid Fund - Direct (G) Liquid
5. Edelweiss Greater China Equity Off-shore Fund - Direct (G) International / Global Commodities
6. HDFC Capital Builder Fund - Direct (G) Diversified Equity
7. Motilal Oswal Multicap 35 Fund - Direct (G) Diversified Equity
FAQ for Beginners for Investing in Mutual Funds Online
How often you track your mutual fund portfolio? (Tracking does not means reviewing)You should be checking daily gains/NAV, XIRR, Absolute returns, etc. at least per month.
MUTUAL FUND TERMS EXPLAINEDAMC - Asset Management Company
SBI Mutual Funds, Aditya birla are some Asset management Companies. You can also call them Mutual Fund Houses [MF houses].
RTA - Registrar and Transfer Agents
NAV = (assets - liabilities) / number of outstanding shares
What are the Direct Mutual Funds Available in ZerodhaMany have asked me which are the direct mutual fund plans available in the market. Here are the consolidated list: Source: Zerodha
List of empanelled AMCs and mutual funds here.
There are more funds from Franklin Templeton and other AMCs but are not listed in Zerodha.
MUTUAL FUND RESOURCES1. Money control - Provide Live Stock Price, Stock Trading news, Live CNBC TV18, Share Market, Views and Analysis on Equity and Stock Markets Tips etc.
2. Value Research Online - Share analysis on each mutual fund and gives a rating.
3. HDFC Invest online - Amazing article for beginners.
Books for Learning How to Do Investment
- The Intelligent Investor by Benjamin Graham
- Rich Dad Poor Dad: What The Rich Teach Their Kids About Money - That The Poor And Middle Class Do Not! - Robert Kiosaki
- Security Analysis: Sixth Edition, Foreword by Warren Buffett by Benjamin Graham
- One Up On Wall Street: How To Use What You Already Know To Make Money In the Market by Peter Lynch
- Common Stocks and Uncommon Profits and Other Writings (Wiley Investment Classics) by Philip Fisher Bruce Greenwald
- Accounting for Value (Columbia Business School Publishing) by Stephen Penman
- Berkshire Hathaway letters to shareholders by Warren Buffet
- The Most Important Thing – Uncommon Sense for the Thoughtful Investor (Columbia Business School Publishing) by Howard Marks
- Stocks for the Long Run 5/E: The Definitive Guide to Financial Market Returns & Long-Term Investment Strategies by Jeremy J. Siegel
- The Millionaire Fastlane: Crack the Code to Wealth and Live Rich for a Lifetime - M J Demarco
- Thoughtful Investor by Basant Maheshwari
- You Can Be Rich Too : With Goal Based Investing by P V Subramanyam and M Pattabiraman
- The Dhandho Investor: The Low-Risk Value Method to High Returns - Mohnish Pabrai
- Coffee Can Investing: The Low Risk Road to Stupendous Wealth - Pranab Uniyal, Rakshit Ranjan, and Saurabh Mukherjea
- Investment Fables: Exposing the Myths of "Can't Miss" Investment Strategies (Financial Times Prentice Hall Books)
- The Art of Wealth Creation
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