One can invest in mutual funds through online and offline modes.
The popular modes of investing in mutual funds are
Demat and trading accounts,
Through a bank
Online mutual funds applications such as FinPlay
Independent financial advisors and directly with the AMC.
Investing with Demat and trading accounts might attract some brokerage. Investing with online platforms and financial advisors will have commissions which will be paid directly by the AMC and the investors need not worry about it. The cheapest form of investing is to invest with the AMC directly through their website and invest in direct plans. They have a lesser expense ratio than regular plans. Regular plans are those which have distributor commission included in them and hence have a higher expense ratio than direct plans. However, it has its own set of pros and cons.
Documents needed for Investing in Mutual Funds
Investing in mutual funds requires a PAN card, bank account, and KYC (Know Your Customer) The following documents are needed for KYC registration.
Recent passport size photo
Proof of identities such as PAN or Aadhar or Driving license
Proof of address such as passport or driving license or ration card or bank passbook or telephone bill or gas bill or electricity bill.
The above documents need to be submitted after self-attesting them. The KYC will take around 7 days to get registered. Once done, the investor can check the KYC online at CAMS or Karvy website by entering their PAN details. The same documents can be uploaded if the process is done online.
Investing in Mutual funds directly with the AMC/Mutual Fund House
Once the KYC is done the investor can invest in mutual funds. Investing directly with the AMC can be done by going to their website and creating a login. Once done the investor can fill the mutual fund application form and SIP form online and can set up auto-debit directly from the bank by adding the fund’s unique reference number to the billers in the bank through net banking.
If the person is investing directly through AMC but offline, then the person has to fill out the application form and SIP form and submit it at the AMC along with PAN, Aadhar and cheque with the amount of investment.
The investor should choose the direct fund option while investing with the AMC directly. Also, this will ensure a lesser expense ratio. The disadvantage with this method of direct investing with AMC in direct funds is that you'll miss out on the recommendations from mutual fund experts and investment advisors which may result in choosing sub standard mutual fund schemes which in turn may hamper your returns over the long run.
Investing with Mutual fund Financial Advisors
Investing with independent financial advisors, though a little costly than direct plans is very easy. All you have to do is sign the forms and submit the necessary documents. The advisors will take the headache of filling the forms and submitting them. The advisors also suggest you with the best funds for investment based on the investor's goals, time horizon and risk appetite using their expertise. They also provide services like monitoring and rebalancing the portfolio according to the market and help the investor track their investments from time to time. Investing with independent financial advisors is highly recommended.
Investing with Online Portals
Investing with online portals is similar to investing with independent financial advisors but the major advantage here is everything is online. The online mutual fund platforms and apps make mutual fund investing as easy as online shopping. All the documents have to be uploaded online and the funds can be added to the cart just like online shopping. They use special algorithms to pick out the best funds for investors. Also, mutual fund suggestions are based on each investor’s needs and goals.
They make the entire investing process very personalized and give customized solutions. One can easily track all their investments at one place and also make investment proofs available immediately for the purpose of tax saving. FinPlay is one such platform which is a licenced mutual fund distributor from AMFI that provides all these services and has a unique algorithm to pick the best funds in the ocean of funds.
Which method is better?
Demat and trading account(Zerodha and Groww store their mutual funds in Demat format) is one of the least preferred methods of investing in mutual funds due to their high maintenance fee. Investing with AMC’s directly in direct funds can cost less than investing with online portal or independent financial advisors in regular funds. One might think they can earn higher returns with lower expense ratio if they pick up direct funds. But what direct mutual funds lack is continuous monitoring.
The advisor continuously monitors the portfolio. They suggest their clients a portfolio which best suits them and is profitable. They rebalance the portfolio when needed to meet client goals. All that the investor has to do is invest and forget. Also, the advisors do the paperwork, monitoring, and rebalancing. The investor can also see all the mutual fund investments in one place. Whereas, in direct funds, the investor has to do his own research, monitor his portfolio, rebalance it and it gets difficult to track all the investments.
You see the real difference here. Don’t these advantages justify the additional expense of 80-90bps?