I have lost a lot of money in stock trading in the past and so I am sceptical of mutual funds (MFs). How do I invest in MFs but still keep the risk at bay? I have a goal of my 5-year-old daughter’s higher education.
For a regular investor, MFs offer two advantages over direct stock market investing. One, they offer the facility of having your money managed by a financial expert in investing. Since the historical performances of MFs are transparently available, you can also compare fund managers and look at track records before investing.
Second, MFs offer diversification—the ability to invest in a variety of stocks with a relatively small amount of money. Diversification inherently lowers the risk of market investments since an investor’s money gets spread out among many more stocks compared to what individuals can afford by themselves. But it should be noted that while these two factors lower the risk of investing in the market, they do not eliminate the risk. Investing in equity MFs does carry risk. However, past market performances strongly indicate that the longer you stay invested in good funds, the higher is the likelihood of making handsome gains.
For your daughter’s education goal, which is still 10-12 years away, it will be good to have a portfolio with a good chunk, say, 75%, in equity funds. You can go for equity funds such as Franklin India Blue chip fund and Birla Sun life Frontline Equity fund.
How do you redeem an MF?
If the investment was made through an application form, for redeeming (withdrawing money from) an MF you would need to submit a redemption form, mentioning the folio number, scheme name and the amount of withdrawal. If it was done online, you would need to login into the platform and submit a digital request. Either way, the money will come to your bank account in 1-3 days depending on the type of fund. Liquid and money market funds are paid out in 1 business day, debt funds in 2 days, and domestic equity funds in 3 days.
I had made an MF investment in 2006 and have since moved cities. The bank account linked to that account is no longer active. I got a call from the MF about a dividend cheque. They have made it payable to my older account. What should I do?
You would need to write to the MF company citing the issue, and request them to change the bank account attached to the folio. You would need to provide proof of both the old and the new bank account (cancelled cheque or account statement).
You should also mention about the dividend outstanding. The MF will then process the change of bank request, and reprocess the dividend payout. Usually, it will happen in the form of a direct (electronic) deposit to your new bank account, and in some cases, a cheque will be reissued payable to your new account.