With the interest rates going down for traditional investment opportunities, people are now slowly moving towards equities for higher gains.
Since these are all first-time investors, so they have a lot of questions puzzling them regarding mutual funds.
In this post, I’ll answer some of the common questions asked by many new investors and I’ll follow up with more posts with more questions as and when I get them.
How to Start Investing?
First of all to start investing in a mutual fund, one has to get their KYC (Know Your Customer) done if it’s not done already.
There are 2 ways to get this done –
First, is the C-KYC (Centralised KYC) where you have to visit the AMC office or a registrar office like CAMS or Karvy, etc. and submit the application form, Pan card, attach a photo to the form, and an address proof mainly Aadhaar or any other proof if you don’t have Aadhaar.
Also along with this, you will have to submit the investment form, in which scheme you want to invest and a cheque for the amount of investment you want to do otherwise they won’t process your KYC.
Second, is doing eKYC, where online you can do your Aadhaar based KYC but here you can only invest Rs.50,000 in a financial year.
How to Select a Scheme?
Before you select a scheme, you should first identify your goals i.e. for what reasons you are investing; Is it retirement, children’s education, marriage, or simply wealth creation. So first, identify what your goal is. Then select the time horizon for which you want to stay invested to realize these goals and also identify your risk profile i.e. are you a conservative or a moderate or an aggressive risk taker.
Once you have the answer to these 3 questions, then we go for the scheme hunt.
To select a scheme, there are several websites like FundsIndia, etc. which you can visit, and based on your inputs, they will show the best funds that fit your profile and you can choose from them or you can also always consult a financial advisor.
Now, if you have a time horizon of around 5 years, then you can go for equity funds with more concentration towards large cap and balanced funds. Also, this will also depend on your risk taking capacity.
If the time horizon is 7-10 years, and you need a good corpus at the end of it, then you can go for multi-cap, midcap and small-cap funds.
But, if the investment horizon is around 3 years, i.e. short term, then you should go with debt and arbitrage funds (these funds behave like equity funds and get tax free after 1 year).
Also Read: Tips to start investing in Mutual Funds
Which AMC is the Best One?
There is no best AMC. So you should always check the performance of the scheme over a long horizon at least 10 years if available, check the performance of the fund manager, the manager’s past history, compare the fund’s performance against the benchmark and the category’s average, etc.
After checking all this, you should zero in on the fund and not the AMC and then whichever AMC it belongs to that’s fine.
Also, 1 more general thumb rule, I apply is, try not to buy all the funds from the same AMC. As the fund and the fund manager may be different, but the research team is the same on the back for all of them, so try to diversify this.
If you are able to find good funds from different AMCs which satisfy your needs, then that is much better and you should go for it otherwise also it’s fine. It’s not a make or break rule.
Few FAQs about SIPs:
What happens if the bank account doesn’t have sufficient balance on the day of SIP deduction?
If you don’t have sufficient balance on the day of the SIP debit, nothing major will happen. When the AMC sends a debit request to your bank, the bank will reject the debit request and so you will miss your SIP installment for that month.
There will not be any penalty from the AMC side, but your bank can charge a penalty amount for this. And the same process will continue. If you miss 3 consecutive SIPs, then your SIP will get automatically canceled.
What will happen to my Units after I stop my SIPs?
Whatever units you have purchased, will continue to remain in your account and it will keep on growing with the growing NAV. So, you can keep holding them till you want and then redeem them as you fit necessary but do consider the exit load and the tax implications before doing so.
Can I stop my SIP in between?
Yes, you can stop your sip whenever you want. There is no penalty for that. You can start/stop your SIP as many times as you want. But remember, most of the AMCs take about a month to process your request.
That’s it, friends, these are a few most FAQs about mutual funds and SIPs.
Please let me know what you think in the comments below.
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