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Strategy to Crack a Maze Successfully! -Planning For Mutual Fund Investment

Mutual Fund is a special type of financial institution which acts as an investment platform. It is essentially a mechanism of pooling together the savings of vastly different groups of investors for collective investments with a predetermined objective of attractive yields and appreciation in their value.

The objectives of mutual funds are to provide continuous liquidity and higher yields with a high degree of safety to investors.

Mutual Fund Investment

The History Of Mutual Funds In India

The history of mutual funds in India can be broadly divided into four distinct phases:

  1. First Phase: In the first phase (1964 to 1987), UTI was established in 1963 by an Act of Parliament. It was set up by the RBI and the Government of India and functioned under the regulatory and administrative control of the RBI. In 1978 UTI was delinked from the RBI and the Industrial Development Bank of India (IDBI) took over the regulatory and administrative control in place of RBI.

  2. Second Phase: In the second phase (1987 to 1993), public sector mutual funds were set up by public sector banks, Life Insurance Corporation of India (LICI) and General Insurance Corporation of India (GICI).

  3. Third Phase: In the third phase (1993 to 2003), private sectors were allowed to set up a MF. In 1993, the first mutual fund regulations came into force, under which all mutual funds, except UTI, were to be registered and governed. The erstwhile Kothari Pioneer (now merged with Franklin Templeton) was the first private sector mutual fund registered in July 1993.

  4. Fourth Phase: In the fourth phase(since February 2003), following the repeal of the UTI Act, 1963, UTI was bifurcated into two separate entities. The first one is the specified undertaking of the UTI with assets under management of ₹29,835 crores as of the end of January 2003 representing broadly, the assets of the US-64 scheme, assured return and certain other schemes. The second is the UTI Mutual Fund Ltd. Sponsored by SBI, PNB, BOB and LICI.

punjab national bank

punjab national bank

Organization Of Mutual Fund 

The four-tier system for managing mutual funds in India is found. These are :

  1. Sponsor: Any corporate body, which initiates the launching of a mutual fund is called the sponsor. In India, SEBI will register the MF if the sponsor fulfils the following criteria –

  2. 1. The sponsor should have a soundtrack record and a general reputation of fairness and integrity in all his business transactions. The net worth of the immediately preceding year should be more than the capital contribution of the sponsor in Asset Management Company. The sponsor should show profits after providing depreciation, and tax for three out of the immediately preceding five years.

  3. 2. The sponsor and any of the directors or principal officers to be employed by the mutual fund, should not have been found guilty of fraud or convicted of an offence involving moral turpitude or guilty of economic offences.

  4. Trustees: Persons who hold the property of the mutual fund in trust for the benefit of the unit-holders are called trustees. A company is appointed as a trustee to manage the mutual fund with approval from SEBI. The important functions of the trustee are –

  5. 1. Keep under its custody of all the property of the fund schemes administered by the mutual fund.

  6. 2. Appoint an asset management company for the purpose of floating the mutual fund schemes.

  7. 3. Furnish information to unit-holders as well as to the SEBI about the mutual fund scheme.

  8. Custodians: An agency that keeps custody of the securities that are bought by the fund managers under the various schemes is called the custodians. According to SEBI Regulation, 1996, the mutual fund shall appoint a custodian to carry out the custodial services for schemes of the fund and send intimation of the same to the SEBI within 15 days of the appointment of the custodian.

  9. Asset Management Company: The investment manager of a fund is technically known as the Asset Management Company (AMC). AMC is appointed by the sponsor or the trustees. An AMC should have a soundtrack record i.e., good net worth, dividend-paying capacity and profitability etc. with a net worth of at least ₹100 crores. The directors of an AMC should have expert knowledge of the relevant fields like portfolio management investment analysis and financial administration.

Beginners Guide To Mutual Fund Investment

  1. Start with any amount (as low as 100 rupees)

  2. Diversify across multiple stocks and other instruments like debt, gold etc.

  3. Start automated monthly investments (SIP)

  4. Invest without being required to open a DEMAT account.

Note: A DEMAT account (short form of “dematerialized account”) is an account to hold financial securities (equity or debt) in electronic form.

How to invest in mutual funds?

You must choose the appropriate fund investment scheme based on a particular policy ( investment objectives and risk management). If you are a fresher in mutual fund investment, you may invest online mode or offline mode.

Invest in funds offline in a direct plan of a MF investment scheme by directly paying a visit to the branch of the mutual fund house. You can also invest in a regular plan through a professional mutual fund manager.

You can invest in direct plans of mutual funds online by visiting the website of a fund house. Must complete your KYC (Know your customer) procedure by submitting Aadhaar and PAN details and then invest in the mutual fund investment scheme of your choice. You can complete your KYC at a KRA (KYC Registration Agency) before investing in mutual funds.

How To Plan Mutual Fund Investment?

These are the following steps for mutual fund investment:

  1. Determine an investment aim: At first, determine and fix your financial goals and budget. Performing this will help you decide how much amount you can keep separate towards investment depending on the level of risk involved.

  2. Choose the correct nature of fund: It is very difficult to decide about different mutual fund types just by reading. That’s why experts specifically recommend a balanced or debt fund for first-time investors as it involves a lesser amount of risks with steady returns.

  3. Choose a single mutual fund: Compare among different mutual funds and just choose a single mutual fund investment scheme. Investors should not ignore factors such as expense ratio, portfolio components and assets under management.

  4. Diversify your portfolio: Try investing in more than one mutual fund to diversify your portfolio and earn risk-adjusted returns. A portfolio of funds will help you diversify across asset classes and investment styles. It will prevent risks – when one mutual fund underperforms, the other funds make up for the loss maintaining the value of your portfolio.

  5. Update KYC documents: You cannot invest in a mutual fund if you have not completed the Know Your Customer (KYC) process. KYC is a government regulation for most financial transactions in India to identify the source of funds and prevent money laundering. To launch KYC – complaints, you need a PAN card and valid address proof.

  6. Open a net banking account: To invest in mutual funds, you must have access to internet banking on your bank account. Mutual funds also allow Investments to be made through debit cards and cheques but doing it through net banking is a more straightforward, quick and secured process to make the investment.

  7. Seek the help of a financial advisor: Get the advice of a professional mutual fund investment expert or manager, if you find choosing the correct mutual funds a difficult task.

mutual fund investment

planning mutual fund


One of the most prominent advantages of investing in mutual funds is diversification. It is the process of spreading a given investment over multiple asset classes. Diversification helps us create an assorted portfolio that segregates the headwinds experienced in various sectors.

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