​​​Mutual funds – A better alternative to direct equity investment

The lockdown period saw a surge in new investors directly investing in the stock market, encouraged by the resurgence in equity markets coupled with the availability of free time and influence of friends and relatives. As per CDSL (Central Depository Services (India) Ltd.) data, the number of individual investors surged 19% to 2.50 crore in August 2020 from 2.10 crore in March 2020. This however might not always be the prudent way of investing in equity, as investors might not have the wherewithal to understand the complexities and volatility associated with the asset class. Instead, they would be better off investing through equity mutual funds, something which can be done at the touch of a button. Investors can use the systematic investment plan (SIP) route to benefit from the asset class.

Direct investor participation in equity is gradually increasing

Direct equity investing calls for expertise, time​​ and constant tracking

Increase in equity participation augurs well for a country like India, which has a large young demography and low capital market penetration. However, direct investment in equity calls for substantial wherewithal and constant tracking of the equity market, which can be daunting for retail investors.

Investors can rather opt for mutual funds that have following benefits

Online investing options in mutual funds

The next obvious question will be how to start investing in mutual funds, especially when one is not stepping outsid​e the house during the Covid-19 crisis. The digital revolution in India has made it possible to conduct the entire gamut of mutual fund transactions from the convenience of one’s home. Investors just need to complete their know your customer (KYC) process and submit their bank and other personal details.

Online investing - A boon for investors

Online mutual fund options

  • Mutual fund websites, applications – Websites and mobile applications of mutual fund houses facilitate all types o​f mutual fund transactions. Investors can also access all scheme-related literature, factsheets, scheme information document, statement of additional information and key information memorandum. ​​
  • Third-party websites, mobile applications – Investors can also use mobile applications created by third-party distributors, brokerage firms and registrar and transfer agents such as CAMS and Karvy. Investors can invest across multiple fund houses empanelled with such platforms and buy, sell, transfer and keep track of their mutual fund investments through the websites and apps. ​​
  • Stock exchanges – The capital market regulator Securities and Exchange Board of India (SEBI) allowed mutual fund distributors to use the stock exchange infrastructure to purchase and redeem mutual fund units directly from asset management companies on behalf of their clients. All mutual fund transactions can be done through this platform. To use this platform, all that investors need to do is contact the mutual fund distributor and register with their PAN, bank account and demat account details. ​​
  • MF Utility – This is a transaction aggregation portal launched by the Association of Mutual Funds in India (AMFI) subsidiary MF Utilities India, which enables investors to transact in multiple schemes across fund houses. A unique common account number (CAN) is required for this facility. Investors can get the CAN by submitting the registration form at any point of sale of MF Utilities India or a distributor signed up with MF Utilities India or a participating asset management company branch. On successful registration, investors will be provided with login access to MF Utility, where they can access information regarding all mutual fund investments. ​​

Summing up

Direct equity investing can be rewarding who have adequate knowledge and expertise in the stock markets but comes with risk. Diversification and professional fund management make mutual funds a viable alternative in the current volatile times. Further, online tools have made investing and tracking of investments easier. However, investors should undertake a proper due diligence of the scheme-related attributes and carefully assess of their own return profile, income and goals before investing, to achieve their financial goals and sail through the volatility.

Disclaimer: Any comparison/data mentioned in this material is for general information only and not intended to be relied upon as investment advice and is not a recommendation, offer or solicitation to buy or sell any securities or to adopt any investment strategy. Information and content herein have been provided by CRISIL Research, a Division of CRISIL Limited, and is to be read from an investment awareness and education perspective only. Recipient are advised to seek independent professional advice before making any investments. The views / content expressed herein do not constitute the opinions of SBI Mutual Fund or recommendation of any course of action to be followed by the reader. SBI Mutual Fund / SBI Funds Management Private Limited is not guaranteeing or promising or forecasting any returns.

Mutual Fund investments are subject to market risks, read all scheme related documents carefully.​

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Investors should deal only with registered Mutual Funds, details of which can be verified on the SEBI website (https://www.sebi.gov.in ) under ‘Intermediaries/Market Infrastructure Institutions’. Please refer to website of mutual funds for process for completing one-time KYC (Know Your Customer) including process for change in address, phone number, bank details etc. Investors may lodge complaints on https://www.scores.gov.in against registered intermediaries if they are unsatisfied with their responses. SCORES facilitates you to lodge your complaint online with SEBI and subsequently view its status.

Mutual Fund investments are subject to market risks, read all scheme related documents carefully.
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