Making your first mutual fund investment

Over the past year, many investors have demonstrated

their keenness to invest in mutual funds, shifting their 

surplus cash from physical savings to financial savings. 

What documents do they need, or what schemes 

should they choose? 

What do I need to start investing in a mutual fund? 

To start investing in a mutual fund, you need to be a KYC (Know your customer) compliant. One way of doing this is using the physical KYC form. Investors can fill this form, attach a photograph, a PAN card copy and a valid address proof such as the Aadhaar, passport copy, electricity bill, or bank statements. This can be submitted along with the first investment form to a registrar or a mutual fund office. Some mutual fund websites or distributor platforms also allow eKYC, using which you can start investing in mutual funds.

How does an investor choose a mutual fund scheme ?
First-time investor should choose a mutual fund scheme keeping their goals, risk appetite, and time horizon in mind. They could opt for goal-based planning, using websites or the services of a financial planner or distributor.

Investors could work out an asset allocation plan  for themselves to guide them on what percentage they could allocate across asset classes- equities, debt and bullion.

Typically, if they wish to invest for a time horizon of one day to less than three years, they could go with debt-oriented funds or arbitrage funds. For 3-5 years, they could consider hybrid funds that are a mix of debt and equity. If their goal is five-to-seven years, they can consider higher risk products such as equity-oriented mutual funds.

Investors should also read the scheme-related documents and understand the investment objective of the mutual fund plans, and know the securities in the scheme where money will be invested.

There are so many fund houses offering equity, debt and hybrid schemes. How do you choose one among them ?

As an investor, one is entrusting the fund house to manage your hard-earned money and, hence, it is important to choose one with care. Decisions taken by the fund house and its fund manager could have a significant impact on the investment performance of the scheme. Financial planners suggest that investors consider the pedigree of the fund house before choosing one. Check the scheme's performance, history of the fund house, management track record and performance of fund managers before zeroing in on a scheme.

Should investors look at past performance of the scheme they have zeroed in for investing ? What clues can they get ?

While the past performance of a mutual fund scheme is not indicative of the future performance or returns, wealth managers suggest that investors look at long term performance over 3,5 and 10 years of the scheme they wish to invest in. They can choose funds that have consistently beaten their relevant benchmarks over that period. A scheme that beats its relevant benchmark consistently across time frames indicates good fund management and an efficient culture from the standpoint of house processes.