How To Invest In Mutual Funds Online?

Once you have decided to invest in a mutual fund, the next step is how to go about it. Mutual funds are regulated by SEBI so there are some basic formalities to go through before you can invest. Today there are a variety of options to invest in a mutual fund. Here are a few such options in front of you.

Methods of investing in mutual funds

Here are some popular methods of investing in mutual funds in India.

  1. Buying the MF units directly from the AMC
  2. Buying MF units from the AMC registrar i.e. CAMS or KFintech
  3. Buying MF units through your broker and holding in demat account
  4. Buying through aggregators like Groww, Kuvera, Scripbox etc

But even before you start this investment process, you must get your KYC or Know your Client registration completed.

What is KYC / E-KYC and How to do it?

The mutual fund KYC is just confirm that you are a genuine investor. You need to do the KYC only once and after that the KYC details are recorded against your PAN. When you apply for the mutual fund, if the KYC is completed, you can go ahead with the investment. Typically KYC involves submitting details about your proof of identity, proof of address and income documents, so SEBI knows that you are investing out of your legal sources of income.

E-KYC has become extremely popular in the last few years. In case you have an updated Aadhar card which is linked to your PAN, mobile and email id, you can do E-KYC for Mutual Funds. Here you just need to authorize the fund / distributor to access your Aadhar data. The E-KYC can be completed in less than an hour. For E-KYC is the need to verify the person. This can either be done through video call or via in-person-verification (IPV) by presenting yourself.

What is direct online investing in mutual funds?

In the last few years, the direct mutual fund platform has emerged as a popular and important method of buying mutual funds. In the past, an investor had to go through a broker or directly approach an AMC to buy a mutual fund. The problem was that the investor needed to have a unique folio for each AMC. Now, here is why the process becomes so complex.

If you are having investments in 10 funds across 10 different AMCs, then you would be having a total of 10 different folio numbers allocated by each of these AMCs. In addition. To access these folios online, you would need 10 different PINS to access the mutual fund account. That would be extremely complex and hard to manage. It is to overcome this hassle that direct online buying of mutual funds have come in handy.

Does direct online investing overcome the folios problem?

It certainly does. In fact, direct online investing overcomes most of the hassles associated with multiple folio numbers and multiple PINS that get just so hard to remember. Here is the process for direct only buying of mutual funds.

  • The first step is to open a demat account with your broker? Even your existing demat account is good enough to hold mutual funds.

  • Mutual fund schemes are also allocated unique ISIN numbers just like shares and mutual fund units are identified and held in demat based on this ISIN number.​

  • Mutual funds can also be bought and sold on the NSE or BSE platform like shares. However, you need to check which AMCs are empanelled with the exchange.

  • On the T+2 date, the MF units will be credited to your demat. Similarly, you can sell mutual funds online and fund units are debited to your demat account and proceeds credited to your bank account within 3 working days.

The process is almost exactly like you are dealing in regular stocks in the market with similar settlement process too.

How is direct online investing different from regular MF investing

There is really no difference. When you buy mutual funds online, it is just the front end interface and the holding method that changes. Instead of holding mutual fund units in the form of a mutual fund statement, you now hold it in your demat account. When you buy the mutual fund units through online facility, broking platform will first check that you have activated your mutual fund investment facility and are eligible with KYC completed.

Once the check is completed, the mutual fund is processed in the trading system. However, the back end process will still be done by the mutual fund registrar like CAMS or KFintech. Once the additional units are created registrar directly sends the units to your demat account. The reverse process works when you sell units because your demat account will now get debited and bank account gets credited.

Which invsting method is better; Through online broker or through ACM?

As we stated earlier, once you decided to buy mutual funds online, there are three options available to you. You can buy these units directly from the AMC website or from your regular broker or even through an Independent Portals like Groww or Kuvera. Here are the pros and cons to help you take a decision accordingly.

  • AMC website will permit you to transact online after the initial formalities are completed. AMCs don’t charge extra fees for this service but you have to maintain different Folios and PINS for different AMCs. That can be quite cumbersome.

  • Secondly, your online broker is accessible on your laptop or mobile, so the process is a lot simpler. There is an existing relationship in place. You must check that your broker is allowing transacting of mutual funds online and whether that AMC is covered.

Can I buy mutual funds through the BSE mutual fund star platform

Remember that the BSE MF STAR platform is not available to retail investors directly. They are only available to registered brokers of the stock exchange and SEBI registered independent financial advisors or IFAs. The BSE offers the MF Star platform to bring about a linkage between the funds and the intermediaries. As an individual investor, you cannot use the Star MF platform directly.

However, if you are a SEBI registered broker or a SEBI registered Independent Financial Advisor (IFA), then you can use the MF Star platform to execute orders on behalf of your clients. The MF Star platform is quite platform is quite popular among IFAs and brokers as they can get a quick and tabulated view of the mutual fund holdings of all their clients along with requisite analytics under a single and central dashboard.