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How to invest in a mutual fund: Online

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A few days ago I did a post on how to invest in a mutual fund Offline, today will tell you how to do it Online.

There are a few ways how you can invest in a mutual fund online.

1. You already have an IFA (and you think he is adding value to your life): In this case you may already be an investor and may have a folio number. Just get a PIN number from the fund house in which you wish to invest. Every time you invest please remember to put the IFA’s number, or he will not get any brokerage (this is really sad from the IFA’s point of view, but a harsh reality). I was pleasantly surprised to see Fidelity Mutual fund which tags a client permanently to an IFA. This is not something great, but basic hygiene. An I F A selling say Hdfc or Templeton mutual fund is doomed if he tells the customer about the E-investing. The fund house can cut him off – and say well the client did not put your code….Well remember the Golden Rule of investing? He who has the gold makes the rule. The best thing is YOUR IFA gets paid and the money is NOT COMING FROM YOUR fund value (well that is what I believe, not sure how trail works, have not got a nice answer so far).

2. When you are indifferent to which IFA you choose, you can go to www.fundsindia.com and invest directly. They also do not charge you anything for the transaction – so you should be agnostic to this mode of investing.This is again a self help model – you should know which fund to choose, time frame, etc. However if you know how much, which fund, how, why…this is a good model.

3. Go through a bank: here the bank is the IFA and you could get them to do the paper work. However you may have to live with suboptimal advice. Some banks charge a % age of the fund invested – this is a no- no, and you should not be willing to pay this. Some banks charge say Rs. 350 for the first transaction and Rs. 35 per month SIP debit – I see no great reason to pay this, but the amount is quite small and some people are willing to pay it. I am a lover of compounding and do not like to lose small change which could have otherwise been compounded.

4. Go to a broker: This is the most ‘pushed’ – and do not want to get into a controversy as to why who is pushing this. This is a mode by which you go to a broker who does the transaction with a pool, bank does the payment and the ‘units’ go to your demat account. You will have to pay brokerage, the pooling costs (the exchange will charge the broker – who will pass it on to you), and the demat charges – either while buying or selling. Too many intermediaries – and I have no clue why they are doing it free (refraining from giving my views – any way all of you call me cynical and sarcastic :)).

I prefer the IFA route simply because my mutual funds are < 5% of my investment funds and track only 7-9 schemes – frankly do not care whether all the schemes appear in one page or no. I see some value add by the IFA and very importantly I prefer knowing that the mutual fund is a phone call away. If you go through a broker and something goes wrong – my guess is you will go from pillar to post. Nobody will know what went wrong. One banker of mine once gave a statement with all holdings, and no direct statement – I just shut the bank account.

Ask people who have had problems with their demat service provider! They treat you like YOU HAVE stolen the shares.

Yuck! lesser the number of people to deal with in life, the better.

36 thoughts on “How to invest in a mutual fund: Online”

  1. Ajay

    I had been investing through Investment Account of HDFC bank. They charge flat fee of Rs 100 per quarter and 100% amount is invested. Again may be for salary accounts it is waived off. I hold salary account with then and yet to see any deduction of fee. I have a sip 10K PM so even 400 Rs per year is not a big amount considering fact it saves lot of time and is convenient. There are some issues mainly pertaining to KYC which fund house are not updating.

    I had registered for fundsindia too ,I like the transparency and active interset of CEO Mr Srkanth of funsindia in various forums including this one. Only downside is a lot of initial paperwork and time in case of SIPS. This is the only reason I did not invest through fundsindia.

  2. km

    Hi,
    Towards the end of the post you suggest that holdings in the demat account have no certainty in terms of accuracy. Could you please elaborate on that? Also, what must one do to prevent such a thing from happening.
    Thanks!

  3. Zarir

    I have been investing online through respective AMCs(Birla,HDFC,ICICI Pru, Reliance, Templeton,and UTI) directly for last few years and I find it most convinient. The only one which gives me problems is ICICI Pru.
    I redeemed partial units from ICICI Pru Longterm fund on 20th of August 2010. Generally the redemption proceeds should have been credited to my account on T+1 basis as I have Direct Credit to my account. I waited for more than 8 days for this to reflect in my account but nothing came in so I wrote to ICICI Pru as well as Cams asking why the delay. They just gave me a complaint ticket No. and the usual “ WE ARE WORKING ON IT “. Again after waiting for nearly 10 days, I had to remind them as to what has happened. Again I waited for a reply but in vain. After some days Cams replied saying enquire with the AMC as on our side the transaction is completed.
    Nearly after a month, now the AMC is saying your cheque is on hold due to non-availability of FIRC of a purchase transaction in December 2008.
    If they require FIRC(Foreign Inward Remittance Certificate) at the time of transaction, why don’t they ask for it at that time? HDFC and other AMCs do it. I had to dig out the 2 year old bank statement, which I was lucky enough to find, scanned and sent it to them as per their requirement and I am still sitting waiting for the proceeds to come to my account after another long delay and the reminders just follows with WE ARE WORKIN ON IT.
    This is not the first time something like this has happened. My dividend was held up for more than a month giving all sorts of invalid reasons in another fund of ICICI Pru.
    It is been one month and 10 days since the redemption. One side I am loosing the upside in the fund and other side the interest if the money had come in to my bank account.
    Now I have decided that once this is sorted out, I am going to sell all my investments from ICICI Pru. It is really not worth staying invested with this AMC any more.

  4. Jagbir

    agreed with Ajay. I’m also using ISA account of HDFC Bank which has expense of Rs. 100/ quarter irrespective of amount/frequency of investment and very satisfied with it. earlier I was doing MF investment through ICICIDirect.com and found they are too expensive.

    I do not devote much time about MFs, just started SIP in 2 ELSS and 2 other MF (1 diversified, 1 small n midcap fund) schemes long ago and take a short review after 5-6 months.

  5. Venky

    I am planning to invest in MFs through the online route. It will be either through fundsindia.com or using HDFC Bank’s ISA Account. I would really appreciate if you guys can let me know which is a better option.

  6. Venshu

    I am investing in Mutual Funds online through ICICI Direct (I am an NRI) for the last 14 months and I find it extremely convenient to use ICICI Direct. The website is quite user friendly and the information on thier site is not too bad. However I don’t use thier research. I was charged Rs. 100/- for every lumpsum transaction till I crossed the Rs. 800,000/- limit. Now I do not pay anything to invest other than the demat account charges. I have read quite a few horror stories online from several ICICI DDirect users but I am quite happy with thier services so far.

  7. Sankar

    This may be a basic question. What does IFA mean? Googling IFA throws up so many things related to finance and investments.

  8. nagendra

    I directly use the website of the AMC , find HDFCFund.com, Fidelity.co.in , to be very good sites , and luckly for me the two other MF that i invest in have quite good websites that allow me to invest directly. HDFC and Fidelity allow you to even start a SIP . I would strongly recommend users to use these sites . Keep costs low , you may feel that amount you pay is small, but if you consider that that same amount could have bought some extra units of MFs and in long run could have made difference.

    And then see a consolidated MF statement across MFs of different AMC just use the CAMSOnline.com ( Only take care to register a common Email Id with all AMCs) , who will instantly email you a PDF of all your MF holding , what more can you ask for . Think, this would be the lowest cost way of investing in MFs Online

  9. Srikanth

    Thanks for the mention, Subra! 🙂

    Ajay,

    Just clarifying regarding paperwork: The account opening involves paperwork due to regulatory reasons. I presume it would be the same regardless of the channel you choose. We ask for the just what is required – proof of PAN, address and bank account and there are options to provide them. For SIP, again, we allow you to setup SIP at the time of account opening which means you can bundle the paperwork in one time. Even otherwise, SIPs are typically setup once a year and we deliver the paperwork and pick it up form your house or work (flexible) when it’s ready.

    At FundsIndia, we provide really useful value-added services on top of our regular investment services (check them out at https://www.fundsindia.com/content/jsp/corporate/WhyJoin.do) at an unbeatable cost. Color me biased, but I think we provide the best online MF service to regular investors 🙂

    Srikanth

  10. Kalyani

    hi Subra:

    good post, and anyways, investing online ‘means’ no paperwork 🙂 I tried routing my investments thru fidelity URL directly, but there appears to be paperwork at the end of the process.. so my question is: Is online fully online (something like icicidirect) where the amt gets debited/credited directly from the bank account ? Isn’t that a convenience that an investor online is looking for? Also, can u elaborate on the PIN details and IFA ..thx

  11. subra

    Venky,

    Hdfc bank is a client and Fundsindia has now become a friend. Srikanth reads this blog, do not think officially Hdfc bank reads this site (a few friends from the bank may be reading it). Minimum number of people in the chain to me is the best thing. Fundsindia I think can also help you with fixed deposits and NPS. As of now these are not there in Hdfc bank. Some paperwork will be there in any ‘online’ model too, so there is no escape. Frankly your first application has to be in hardcopy form. Once you are past that I guess the going will be smooth. Also I guess for fundsindia.com you are bank agnostic (ok open architecture)..so if you have an account in 2-3 banks, you may be better off with fundsindia.com. Just wait some banks may give you fundsindia.com as the ‘friendly website’ when Srikanth decides to share the trail with banks which are not as tech friendly as Hdfc. Till then use both 🙂 keep the better one, chuck the other one!

  13. subra

    Currently advice is oral (and paid for in some way) and execution is online. Things like Icicidirect or hdfc sec or Kotak sec go through more players. Broker, Exchange (settlement), Nsdl (demat), fund house and the investor. Obviously at some stage everybody will want to make money.

    The Ifa route, a few banks, fundsindia, etc. reduce the number of intermediaries – and therefore the costs go down. I also hear about fundssupermart, but not sure which category they fall in. In a mf the only thing the end customer can do is reduce costs.

    I realise that wealth creation requires focused investing and wealth preservation requires diversified investing.

    Frankly it is a jungle out there and many people working without guidance get sub-optimum results. However most people (thanks to a Socialistic hangover perhaps) live far, far below their means and do not have hobbies. So a sub-optimal return may not matter too much – they will work till 60…and spend less so they leave money for the next gen….

  14. Selva

    I have trasferred-in and consolidated all my MF units to ICICIDirect post SEBI abolishing the entry load and ICICI Direct waiving the transaction charges for folios above eight lakhs. My experience with ICICI Direct has been good. of late, I see an option in their website wherein investment money from accounts held in other banks also can be routed for investment.

    PS: Though I am glad about ICICI Direct’s service, some of friends still scare me about ICICI Bank’s financial health and when I mentioned that even RBI has issued statements supporting ICICI Bank’s financial condition, they say it is better that I stay away from ICICI Bank. Ofcourse I agree that MF investments are with the AMCs and not with ICICIBank and hence not an issue. Subra, others -> Any thoughts?

  15. meena s

    Subra,

    Very useful post. I had decided to go online last year when SEBI abolished entry loads. Prior to that I used to invest offline via HDFC Bank where I have a salary account. But their services started deteriorating when entry load was abolished. They would service only those investments that are made in HDFC mutual fund and not others. I was furious and opened an account with icicidirect and transferred all my MFs to online with icicidirect. They took quite a long time to transfer the holdings but things are smooth and I feel more in control of my investments once the transfer process is complete.
    A few months back I heard about Fundsindia and opened an account with them for MF investing and NPS. I am much more satisfied with their services and the transfer process is much more faster and smooth. I hope their NPS services will also be equally satisfying.

  16. Rajesh Jaiswal

    I had been investing in MF through ICICI Direct, however Rs. 30 + Tax (Total Rs. 33.09) for each SIP transaction is very high charges. It comes to be 3.309% for a monthly SIP Rs. 1000. ICICI Direct is good for people having portfolio more than Rs. 8 lakhs.

    I therefore started investing through FundsIndia since last year and I am very happy. The SIP is a bit different. The amount goes to the FundsIndia account first and then units are credited based on NAV of next business day. However, I invest using additional purchase option every month after my salary is credited and keeping control & discipline on my monthly SIP. I have setup SIP for IDFC with them as IDFC does not allow additional purchase for some funds.

    FundsIndia is providing excellent services.

  17. Deepak Mohan

    Subra,

    Started reading after deepak recoed your site. I was with IFA/ Direct etc and then was an early adopter of Fundsindia – they were initially superb and I transferred in most of my MF investments to them. Then started the hitch, like most fast growing platforms, I think their customer support struggles with non – standard requests or cant explain requirements other than with the dead pan ‘thats our requirement’ ( had to give out 6 cheque leaves to transfer in!! go figure) – have stopped new investments with them, running with the existing SIPs – Of all my providers, I think Citibank is supremely painless and awesome, will probably shift all my future business online to them.

  18. subra

    Selva I am no fan of Icici bank, but mutual fund investments through an agent does not matter at all. Of course if you need advice you will have to go to an advisor who is capable of giving advise. However if it is only execution, choose the cheapest and most efficient one. As simple as that 🙂

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