What documents do I need to start a mutual fund investment?
To make your first investment in a mutual fund, you need to be KYC (Know Your Customer) compliant. To do this physically, an investor can fill out a form, attach a photograph, copies of the PAN card and a valid address proof such as Aadhaar, passport, voter identity card or driving licence. This can be submitted along with the first investment form to a registrar or a mutual fund office. To do it digitally one can use some mutual fund websites or distributor platforms which allow Aadhaa-rbased eKYC.
What should be the first MF scheme that I should consider?
First-time investors should choose a fund scheme keeping their goals, risk-taking ability and time horizon in mind. Typically financial planners feel if they have a time horizon of more than five years, they could opt for equity-oriented funds. However, if they have a time frame of 1-5 years they could use debt or hybrid funds, while for a time frame of less than a year, they can use arbitrage funds or ultrashort-term funds. Ideally, they could opt for a diversified equity mutual fund scheme which could be either a large-cap-oriented or flexicap fund. Conservative investors could also use an aggressive hybrid fund that allocates 65-75% to equity and the rest to fixed income. They could consider staggering their investment by using a systematic investment plan (SIP) as a tool to invest, as this evens out volatility and sharp market movements.
There are over 40 fund houses offering equity, debt and hybrid schemes. How do I choose one amongst them?
Since an investor entrusts the fund house to manage his/her money, it is important to choose one with care. Decisions taken by the fund house and its manager could have a significant impact on the investment performance of the scheme. Financial planners suggest investors consider the pedigree of the fund house before choosing one. Check how the schemes have performed, the history of the fund house, management track record and performance of fund managers before zeroing down on a scheme. Avoid going for new fund offers (NFOs) or thematic and sectoral funds where there is a narrow scope of investment.
How important is the past performance of the scheme zeroed in for investing? What clues can they give?
While the past performance of an MF scheme is not indicative of future performance or returns, wealth managers suggest investors should look at the long-term performance of periods of 3, 5 and 10 years of the scheme they wish to invest in. Funds that have consistently beaten their benchmarks in that period and have a clearly laid out philosophy for investing should be preferred over others. A scheme that beats its benchmark consistently across time frames indicates good fund management and efficient process of the fund house.
