Mutual funds are professionally managed investment funds that pool money from investors. They create a portfolio of stocks, bonds, or other securities. Usually, mutual funds charge a small amount of commission for the services they provide.

Thanks to the ease of investing, low ticket size, and relatively lower cost, mutual funds are becoming a popular means of investing for the masses. Thus, the asset under management (AUM) of the mutual fund industry has zoomed exponentially in the last few years. As you know now what is mutual fund, let’s understand how to invest in mutual funds.

There are several ways of buying mutual fund units. You do not necessarily need a demat account to buy mutual fund units. However, demat accounts are generally used to store your financial securities such as shares in a dematerialised or electronic form. You can also store your mutual fund units in the demat account.

The most convenient way is to buy mutual funds online. However, before delving deeper into methods to opt for mutual funds investment, let us understand two types of mutual funds:

Regular mutual funds: Regular mutual funds have a higher total expense ratio (TER) or commission that is charged by asset managers. Regular mutual funds are sold by distributors – basically third-party agents. The higher charge is simply because a share also goes to these distributors. Generally, the total TER is in the range of 2 to 3 per cent of the investment amount.

Direct mutual funds: Direct mutual funds are sold directly by mutual fund houses. They have a relatively lower expense ratio as they do not include commissions for distributors. Many brokers, investment advisors or distributors also offer direct mutual funds, though they may require demat accounts. Generally, the TER is in the range of 0.1 to 1.5 per cent of the assets.

Methods to buy mutual funds online are as follows:

Website of asset manager

There are in total 42 asset management companies. These are the companies that manage money for investors. Last checked, all of them offer direct mutual funds for investors.

First of all, identify the asset manager of the mutual fund scheme you want to invest in. In order to buy mutual funds from the asset manager, you need to create an account on the website of that particular asset manager by signing up.

You also need to have your Know Your Customer (KYC) – a mandatory process of identifying and verifying the customer’s identity – done, if not already done.

After you sign up, you can search for the mutual fund scheme you want to invest in and follow on screen instructions to buy. You can also create a Systematic Investment Plan (SIP) in the desired scheme on the website.

Third-party agents

Many third party agents – usually called distributors – provide last mile connectivity to asset managers by bringing in investors. Investors also benefit as they do not have to create accounts with each asset manager separately. Usually, one distributor can take care of all your investments. They also can act as your advisor.

It is advisable to choose a distributor that is registered with the Association of Mutual Funds in India (AMFI). To invest via a distributor, you may have to call the agent or visit their office. Many distributors also have a website where you can buy mutual funds. All you have to do is go to their website, sign up, and follow on screen instructions to buy mutual funds.

Transfer agents

Computer Age Management Services (CAMS) and KFin Tech also known as Karvy – two transfer agents – also act as distributors as they offer mutual funds to investors. Since they act as record keepers for asset managers, they can also provide extensive information about your portfolio. You can sign up on their website to purchase, redeem or switch among mutual funds.

To achieve your financial goals, mutual fund investments can be a great choice. You can use a mutual fund calculator to calculate the capital gains along with the maturity amount you will get on your mutual fund investments.