Mutual Funds has been the buzz word for quite some time now. You can buy mutual funds online just like you shop online. Upwardly makes mutual fund investing as easy as online shopping. Have you invested in them yet? Before starting your investment journey, understand where and why you should invest in a particular asset.
What are Mutual Funds?
Mutual Funds are investment schemes professionally managed by financial experts. Many investors, individuals, and entities invest money in these schemes or funds to generate better returns. These investment schemes could invest in Shares / Stocks(Equity), Government and Corporate Bonds / Securities / Debentures (Fixed Income) or a mixture of the Equity and Fixed Income Securities. Mutual Funds are bought and sold in Units. Mutual Fund units are allocated to investors basis the proportion of their investments and value of these units is tracked as Net Asset Value(NAV) which is daily released by the Fund houses. The Securities and Exchange Board Of India(SEBI) regulates the Mutual Funds industry. There are around 45 different Mutual Fund houses and more than 12000+ Mutual Fund Schemes.
Taxation in Mutual Funds
Long term Capital gains tax
For Equity Mutual Funds (if held for more than a year) are taxed at 10% for gains withdrawn exceeding ₹1 lakh in a financial year. Gains withdrawn up to ₹1 lakh in a financial year are exempt from Tax. For Debt Funds, 20% with indexation benefit for withdrawals beyond 3 years.
Short Term Capital gains tax
Equity Mutual Funds investments are taxed at 15% (if held for less than a year). Debt Funds are taxed as per the marginal tax slab of the individual (if held for less than 3 years).
For more information, read our post on Demystified: How Mutual Funds Are Taxed
Why are mutual fund investments better than other investment products?
Mutual Funds, historically, have proven to be much better investment avenues than other products available to investors. Investments in MF have proven to be more effective because of the following reasons:
Managed by professionals
Financial experts invest in equity and fixed income products. They invest on your behalf. They are supported by large teams which assist them in analyzing data and dissecting nitty-gritty of the markets like macro and microeconomic environment, GDP rates, Interest rates, and its future outlook, fundamental analysis into each company that they invest or not invest in. Which clients as individuals might not be able to do themselves.
Better taxation structures
The government of India offers incentives to customers to invest in mutual funds by providing tax structures. So while your fixed deposit returns are completely taxable, Investment in debt mutual funds come with tax indexation benefits (which can lower your tax burden to almost as low as 2% as opposed to as high as 30% in Fixed deposits). Investments in equity mutual funds have only 10% tax (on gains withdrawn above ₹1 lakh in a year) compared to 30% taxation on FDs. Gains on equity mutual funds withdrawn up to ₹1 lakh in a year are exempt from tax.
Mutual funds are held in units. So you can always redeem your investment partially while keeping the other investment intact and untouched. This is unlike fixed deposits where you have to fully withdraw your investment and pay pre-mature withdrawal charges on the entire amount.
Open-ended mutual funds can be sold anytime. This is unlike investment like Insurance, PPF, NSC, etc. where you have long lock-in periods and large pre-mature withdrawal penalties.
Mutual funds invest in multiple securities. This diversifies the risk for you much better than other investments.
What do you need to start investing in Mutual Funds?
To begin with, you need a PAN Card, Bank Account and you should be KYC compliant. Investors have to provide documentation mandated by SEBI to get Know Your Client (KYC) registration. KYC registration can be done Online and Offline. Once the KYC is registered with the SEBI registered entities, investors can start investing in Mutual Funds. This is a one-time activity. Investors can start investing in Mutual Funds through any of the intermediaries once the KYC is registered.
Investments in Mutual Funds can be done through Demat or without Demat Accounts (Upwardly). In both scenarios, the Asset Management Companies (AMCs or Mutual Fund Companies) keep a record of your investments. Both modes are completely safe, and for both, investment and redemption (withdrawal) happen from your bank account.
Each mutual fund scheme has a form that investors need to fill. If you start investing in the systematic investment plan (SIP), you need to fill in two forms. One to open an account with the mutual fund and the other to specify your SIP details such as frequency, monthly instalment amount, and date on which the SIP sum is to be invested.
There are many ways to invest in Mutual funds:
All mutual fund houses allow investors who do not make their mutual fund investments through distributors invest though Direct Plans. These have a lower expense ratio compared to existing fund schemes of the AMC.
All intermediaries have to be registered with the Association of Mutual Fund in India (AMFI). The intermediary brings the mutual fund application form, helps you fill them and submit the form and other documents to the Mutual Fund office. Intermediaries charge you a fee for these services.
IFAs are independent Financial Advisors, these individuals facilitate mutual fund investments for their clients. They help you fill the application form and also submit the same with the AMC.
Directly with the AMC
You can invest by directly going to the AMC. The first time, you may have to go to the AMC’s office. Subsequent investments can be made online (provided this facility is offered by the AMC) or offline, using the folio number.
There are several third-party online portals, where you can invest in various mutual fund schemes across AMCs. Most of the portals have tie-ups with banks to facilitate easy fund transfer at the time of investing. Example: Upwardly
Through your bank
Banks are also intermediaries who distribute fund schemes of different AMCs. You can invest directly at your bank branch into fund schemes that you wish to invest in.
Through Demat and Online Trading Account
If you have a Demat account, you can buy and sell mutual funds schemes through this account.
Why is Upwardly better than other options?
Upwardly is better on two fronts
One, there are no transaction or annual maintenance charges with your upwardly account. Most account service providers levy these charges, and over the long-run, these costs would result in substantial reduction in your net-worth.
Second, investing through Upwardly is not just about buying Mutual funds. That is just the start. Our ongoing portfolio management service ensures that you know when to sell, switch or rebalance your portfolio.
In short, Upwardly creates a portfolio of funds for you based on your goals. These funds and the allocation of money within these funds change based on market conditions. Hence, what you are tied to is the monthly investment amount, not the fund.
This is the biggest advantage of using Upwardly’s robo-advisory platform.
Upwardly does not distribute direct funds through its platform. You can invest in Mutual Funds either through a Lump Sum (One Time) or Systematic Investment Plan (SIP). For Lump Sum investments, you would need to transfer money from your Bank account through the Bombay Stock Exchange (BSE) Payment gateway integrated with our platform. For SIP (Systematic Investment Plan) investments, once you have placed the order through our platform, we would be sending you a NACH mandate form. You would need to take a print out of the NACH mandate form and sign it. This allows BSE to deduct money from your bank account automatically.
More about Upwardly
Upwardly has tailored Nobel Prize-winning portfolio strategies, especially for the Indian Market. We create balanced and personalized portfolios for you based on your Investment Horizon and Risk Profiles while accounting for the prevailing Market Conditions like Stock Markets performance (Price to Earnings, Price to Book, Dividend Yield), Interest Rates, GDP growth Rates, and other important macroeconomic factors.
At Upwardly’s we use a proprietary investing model which is based on Dynamic Asset Allocation that has given substantially higher returns than the Markets over a period of two decades. We optimize your portfolio to offer maximum possible expected return for a given level of risk through careful selection of asset classes and mutual funds using our proprietary ranking frameworks.
Also, we constantly monitor your portfolio and recommend periodic rebalancing to maximize returns for you while taking into account prevailing market conditions, tax implications, switching and exit costs to meet your goals and aspirations. We offer you a flexible and convenient platform to track/switch/Redeem/Top Up your investments at a click of a button from the comfort of your home/office.
We have the best interests of our client in our heart, and we believe that nobody does it better than us.