One can invest in mutual funds through online and offline mode. The popular modes of investing in mutual funds are demat and trading account, through a bank, online portals like Upwardly, independent financial advisors and directly with the AMC.
Investing with demat and trading account 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 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 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 identity 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 with the AMC
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 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 direct fund option while investing with the AMC directly. Also, this will ensure lesser expense ratio.
Investing with 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 goals, 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 platforms 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. Upwardly is one such platform which 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 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 portals 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?