Saturday, February 5, 2011

Chapter 4 - First step in share market "Mutual funds"

How does mutual fund works :

In simple term Mutual fund house collects money from thousands investors and Mutual fund manager invest that money in share market after through research. Mostly  Mutual fund managers have proper education , training and experience in finding good Companies. They are also responsible to continuous evaluate the  investment they made.

Thus there are numerous advantage of investing in share market through Mutual funds.

1. You have not to read the profit /loss accounts of the companies to find a good company to invest in. Mutual fund manager will do it for you.

2. Once you invested in a share , you have to keep track of performance of companies . Some companies are susceptible to global and local policy changes and raw material rate changes . Keeping track of such news is difficult for common /new investor . Mutual fund manager does this job for you for a very small amount (if you are investing in MF through a Broker)  or free of cost if you are investing in Mutual fund DIRECTLY.

3. Deciding when to buy a particular stock and when to sell a stock for profit making or to prevent further loss is most difficult task , with Mutual Fund you delegate it to fund manager for free of cost or at very small price.


How can you invest DIRECTLY in Mutual funds?
a)  You can directly go to mutual fund office in your city and apply for mutual fund . In application form instead of  Broker code write "DIRECT" and give them check . You DO NOT Need Demat account for mutual fund investment. You must have PAN Card and Address proof. 

b) If you want to invest online then go to web site of the Mutual fund.
1. Find "invest online " or  "investment online" option. 
2. Fill Application online (BROKER CODE - DIRECT )
3. Submit the application and make payment by Netbanking or credit card.
4. When investing 1st time you have to submit /post   PAN card copy / address proof to Mutual fund office. then they will give you online login ID / Password . First time onwards you need not to post / submit anything ,you can buy online.  (This procedure is checked for HDFC mutual fund and Reliance Mutual fund other Mutual fund house must be giving something similar options check their websites .)

NOTE : When you are applying DIRECT you need not to pay any fee to anybody. Your FULL amount will be invested in the Mutual fund you select.
  If you sell your mutual fund before 1 year you have to pay EXIT LOAD (1% - 2%)


C)  You can open account with one of the following broking house but they will be charges some fee for every mutual fund investment you make through them.
  

Now a Days Most of the banks are having online trading product. Either they have their own broking company like ICICI has ICICISecurities (ICICIDirect.com)   or they have tie up with some broking firm.

No one Tell you tip  :  Don't open investment account if you want to invest only in Mutual fund.
If you want to try your hands on share investment and share trading (yes these are 2 different terms) open trading account through your saving bank account provider bank. Your should be having tie - up with some broking house.

Before opening account CHECK what is the fees you have to pay for every fund transfer (SIP / lumpsum buy) .

Why ? because if you have saving account with SBI and you are opening online MF buying account with Reliance MF . SBI will charge some money for every purchase you make with Reliance .

When Bank and Broking fund /Mutual fund house has tie - up , Bank charge less or no fees for fund transfer to Mutual fund house .

I have ICICI bank account and trading account with ICICIDirect.com . Charges are little higher but I think I get better services.  You can check with your bank if it has tie-up with any Broking firm or they have their own broking firm.

Check next post to find which Mutual fund is best for investment.
Click here to learn about different type of mutual funds

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