Steps for smooth online MF investments
Investments through Internet can cause headaches if you make basic mistakes; here's a checklist
Last week, Mint Money told you how you can invest in mutual funds (MFs) online (http://tinyurl.com/ml7n7tj). As quick and convenient it is, online investing can cause headaches if you make basic mistakes; once the transaction goes out of your system, you cannot call it back. We give you a checklist that you should run through to ensure your online investing becomes a smooth experience.
Choose the right scheme
This is most important. Make sure you do your research well before you step online to buy MFs. “I have observed that many people who buy online, buy yesterday’s winners. We all know that past performance is no guarantee for future returns”, says Kalpen Parekh, chief executive officer, IDFC Asset Management Co. Ltd.
Dhirendra Kumar, chief executive officer, Value Research, a MF tracking firm, warns to keep a check on the number of schemes investors buy through the online route. “Typically when people buy over the Internet, they tend to buy too many schemes. Avoid making a clutter,” he says.
Even the choice between a growth, dividend or dividend reinvestment plan needs to be taken by the investor himself.
Choose the right option
What do you do when you make a mistake while filling a physical application form? You throw it in the bin. You can’t do that when investing online. Many fund houses have variations of a single type of scheme, like a monthly income plan (MIP). So there will be schemes such as MIP 1, MIP 2, MIP Plus and so on. Once you hit the enter button, there is no going back.
Choose the right plan
When you invest directly through a fund house, make sure you choose the direct plan. Effective 2013, you can choose direct plans if you invest directly with a fund house, avoiding a MF distributor. Direct plans have lower expense ratios since they don’t include distributor commissions.
Most fund houses give you the choice between a direct plan and a regular plan when investing online. If you choose the regular plan, entering the distributor code is mandatory; trail commissions on your purchase will go straight to that distributor. Fund houses claim that this choice is given to the investor since, at times, investors invest online in schemes that their distributors may have suggested. And so, such investors may want to put in their distributor code, they say.
Cut-off time
Online portals typically have an earlier cut-off time. If you submit a physical application to your fund house’s office, you need to submit it by 3pm if it is an equity or debt fund (for liquid funds it is 2pm). But online portals have earlier cut-off times. “We need to check a few key things about investments that come in and need to reconcile that by 3pm to ensure that fund houses get our details in time”, says Rajesh Krishnamoorthy, managing director, iFast Financial India Pvt. Ltd, the firm that runs Fundsupermart.com. Typically, the cut-off time is 2pm for online portals in case of equity and debt funds.
Keep an eye on exit loads
Check exit loads at the time of withdrawing units. Many schemes impose exit loads if you withdraw within two months to a year’s time, depending on whether it is a debt or equity scheme. In physical applications, it’s easier to check exit loads because they’re clearly written on account statements. Since the redemption request slip is attached to your account statement, you can’t miss checking the exit loads. But in online portals, when you redeem your MFs, exit loads may not be clearly written in the same webpage where you initiate a redemption request.
The advisory add-on for online investing
As online portals have traditionally facilitated only transactions, some portals have now started doling out advice in their own ways.
So if you are a FundsIndia.com customer, for instance, you can email them your question and seek advice on your portfolio or you can seek a telephone appointment. “We get 15-20 questions a day and our turnaround time is usually one business day,” says Srikanth Meenakshi, director, FundsIndia.com, an online portal that has earmarked five people to specifically answer customer queries. This is a free service.
iFast Financial, on the other hand, has a basic risk profiling service for its online customers. So if a customer logs in to buy a MF, she will be told to fill a risk profiling form—if she hasn’t done it already—which is then maintained by the firm.
At the back-end, iFast Financial has already done risk profiling of all MF schemes. If a customer, by any chance, chooses a scheme that is inconsistent with her own risk profile, they get a warning message.
Additionally, iFast Financial also allows financial planners to connect with its investors using the iFast platform; advisers log in, register their advice, the customer gets a message on her phone who then logs in using her own username and password, sees what her adviser has suggested and then buy funds accordingly.
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First Published:24 Jun 2013, 06:54 PM IST
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