An investor needs to have a permanent account number (PAN), passport sized photograph and an address proof – passport, Aadhaar or driving license – to begin with.
Part 3 of the Classroom series on mutual funds explains how to start investing in mutual funds, the documentation needed, and various modes of investing.
Q. How do I start mutual fund investments? What are the key documents I need to have?
A. An investor needs to have a permanent account number (PAN), passport-sized photograph and address proof – passport, Aadhaar or driving license – to begin with. PAN is not mandatory if the investment is less than Rs 50,000. An investor also needs to have a bank account to invest in mutual funds. Investments and redemptions are channelled through a bank account. Aadhaar-based KYC (know-your-customer) using a one-time password sent to the investors will soon be allowed.
Q. Can I invest directly with the fund house or do I need a distributor?
A. Mutual fund schemes offer two plans – direct and regular. If you route the amount through a mutual fund distributor, you end up investing in a regular plan. You can also invest directly in a mutual fund scheme without an intermediary, by opting for the direct plan.
Q. Do I need to pay a commission to my agent?
A. There is no need to pay a commission to the mutual fund distributor. The distributor is paid by the mutual fund and it gets deducted from your scheme’s NAV. So, in effect, the money goes out of your own pocket, but the fund house pays him; you don’t. The commission paid to the distributor is also mentioned in the statements issued to you. If you invest through a registered investment advisor (RIA), you are expected to pay a fee for the advice received by you. You can invest in direct plans to avoid paying commissions through fund houses.
Q. My fund house says I need to get my KYC done before investing. Now, I am already KYC compliant with my bank. Do I again need to go through the process again?
A. KYC is a process to establish the identity and the address of the investor to ensure that there is no money laundering. You have to complete the ‘know your customer’ process to begin investing in mutual funds. However, the Aadhaar-based KYC should make it an easier task. The KYC authentication process is simpler with Aadhaar using a one-time password. This reduces paperwork and increases the speed of the KYC process. In December 2016, the RBI allowed the use of Aadhaar for KYC purposes. The Supreme Court stopped the use of Aadhaar for KYC in October 2018. However, recent reports suggest that the same will come back soon to make life easier for investors.
Q. How much amount should I begin investing with?
A. You can start with as low as Rs 500. Each scheme has a different threshold of minimum investments. In the case of systematic investments, the threshold may change. Amounts must be decided based on the size of the target corpus, time horizon and type of fund chosen.LIVE NOW... Video series on How to Double Your Monthly Income... where Rahul Shah, Ex-Swiss Investment Banker and one of India's leading experts on wealth building, reveals his secret strategies for the first time ever. Register here to watch it for FREE.