Step 1: Search: Where to look for if you want to begin saving in mutual funds
Mutual funds are much like any other product, in that there are manufacturers who provide the product and there are dealers who sell them. Large banks to organized brokerage houses to Individual Financial agents get empanelled with Mutual Funds to provide advice and assistance to customers who want to buy units. Mutual funds units can now also be bought over the Internet.
Contacting an Investment advisor in a bank or a brokerage house or an Independent Financial Advisor is the first step to gathering information.
Step 2: Evaluation: choosing the right mutual fund for you
Each Mutual fund offers a variety of schemes to suit differing needs of investors. The Bank / Brokerage house / Individual Financial Advisor helps you make the choice based on your needs
As an investor one may
a) want to invest for the short term or long term want to invest
b) want regular income or growth
c) want to target lower risk or higher returns
d) be convinced of a particular sector and want to invest in it
Remember, just like a salesman in a gift shop, your investment advisor can help you the most if he knows what you are looking for.
Step 3: Purchase
After you have decided to save, you may have to decide among the various investment and withdrawal options that any fund offers to its investors. Most of these schemes also offer various options to customize your operation of the fund to your needs:
Systematic Investment Plan (SIP)
Allows you to save a part of your income regularly. Also used to reduce risk when investing in schemes targeting aggressive growth.
Systematic Withdrawal Plan (SWP)
Allows you to withdraw a part of your investment regularly. Used when you want to withdraw your investment for a specific regular payment, like insurance premium payments of monthly/quarterly frequency
Direct debit
Saves the hassle of writing a cheque when making an investment. Your account is debited automatically for the amount invested.
Direct credit
The reverse of Direct Debit. It saves the hassle of enchasing a cheque when withdrawing an investment. Your account is credited automatically with the amount withdrawn.
Dividend plan
Allows you to get Tax-free dividends from your investment. (As per current tax laws).
Growth plan
Allows the income generated from investment to be ploughed back into the scheme. Used by investor targeting growth in their investment.
Some funds carry an entry load, which is a percentage fee deducted from the amount invested before investment. Thus a 2.5% entry load will mean that if you invest Rs. 1 lakh in a Rs. 10 per unit IPO, instead of getting 10,000 units, you will be allotted 9,750 units. Check for presence of such loads and other conditions before investing.
After deciding the choice of mutual fund, investment and withdrawal, you are ready to begin your savings. You need to now fill up an application form and attach a cheque of the value of your investment or mention your account number to have it automatically debited from your account.
Step 4: Post Purchase Monitoring
Once you have invested in an ongoing fund, expect a period of two to three days before you receive an account statement on the address mentioned by you in your application form.
The Account Statement
Your account statement indicates your current holding in the scheme that you have invested. Please ensure that all your details have been correctly captured in account statement. Please point out any discrepancies to your nearest CAMS investor Service Centre or the Mutual Fund office. You can request an account statement any time by calling up your nearest CAMS / Mutual fund offices usually mentioned on the back of the account statement.
The transaction slip at the end of the account statement can be used for additional purchases, redemptions or to intimate the mutual fund on any change in bank mandates/address.
The NAVs of all the open-ended schemes are published at the fund's website, financial newspapers and AMFI (Association of Mutual Funds) web-site www.amfiindia.com.
Step 5: Exit
While you should periodically monitor the performance of your investments, we recommend you do not get swayed by short term considerations in deciding your exit. If you have invested in a long term fund, you can spare yourself undue worries by not monitoring the NAV every day or week. Checking the performance once in a while along with your advisor should be fine. Most mutual funds will provide you with a toll free number that works from 9 am to 5 am and a website. For specific assistance you can also use your financial advisors help.
Redemption/ Withdrawal
Just submit your completed transaction within the transacted time for the scheme that you are invested in and deposit the same at the nearest CAMS Investor Service Centre or the office of the fund. You can either get a direct credit to your bank account or you can generally collect the cheque at the CAMS Investor Service Centre/ AMC offices. If you fail to do so then the cheque is couriered to the address mentioned in your account statement. Most funds take 1-3 days to credit your account with your redemption proceeds.
In case an exit load is applicable to your withdrawal and you have redeemed a fixed amount, an additional number of units equivalent to the exit load amount will be liquidated from your investment. You can check this amount with the mentioned exit load when you get the account statement using a simple calculator.
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