9 Things to Know Before You Open a Mutual Funds Account

9 Things to Know Before You Open a Mutual Funds Account

In our previous articles, we’ve seen what mutual funds are, and how to invest in them. Now, let’s look at what nine things you should consider before you open start investing in Mutual Funds.

  1. Think about your financial goal and the time frame: The best way to invest is to align your investments with your financial goals. Why do you need to invest? How long do you want to stay invested? And how much will you need? Your options if you are saving for an international trip next year will be different from those if you are investing in sponsoring your child’s study abroad in five to 10 years.
  2. Know your risk appetite: Before you begin investing you must understand how much risk you can take. The digibank risk profile questionnaire will help you evaluate your risk appetite for investing. The app will also alert you in case you choose a fund which is above/outside your risk profile. To know more about your risk profile refer this article: https://www.dbs.com/digibank/in/articles/understanding-your-risk-profile.
  3. Get the right fit: You can have several schemes in your mutual funds account. Your choice of product should be in line with your financial goals and your risk appetite. If you need funds in the short-term it would make sense to consider low-risk investments like debt mutual funds. On the other hand, long-term investments like equity mutual funds are great for recovering any losses arising out of short-term volatilities.
  4. Make sure you’re Mutual Fund KYC compliant: If you are wondering how to open investment account, one of the basic requirements is to get your KYC (know your customer) in place. This is a one-time requirement, and you don’t have to do it each time you invest in mutual funds or shares. A mutual fund KYC is different from your savings account/bank KYC. While the bank KYC is mandated by the RBI, the Mutual Fund KYC is a SEBI requirement. According to SEBI norms all financial institutions and intermediaries must ‘know’ their customers. KYC enables institutions to know/ understand their customers and their financial dealings to be able to serve them better and manage its risks prudently.
  5. Consider the cost: When you look for mutual fund schemes, you need to consider the expense ratio, which is the amount that the fund house charges you to be part of a scheme. This is calculated as a percentage of assets under management. Higher the expense ratio, lower your returns will be. So choose a fund with a low ratio.
  6. Consider tax implications: Mutual fund returns attract capital gains tax. There are two types of taxes - short-term capital gains (STCG) tax and long-term capital gains (LTCG) tax.
    1. For equity funds, LTCG of 10% is applicable on capital gains over Rs. 1 lakh per annum, for investments held for over a year. For investments held under a year, the STCG tax is calculated at 15%
    2. Gains on debt mutual funds held for less than 36 months are treated as short term capital gains and taxed as per the income tax slab of the investor. Gains on debt mutual funds held for 36 months or more are treated as long-term capital gains and taxed at the rate of 20% after indexation
  7. Diversify: One of the good things about mutual funds is that they give you an enormous scope for diversification. Even if you invest in just one fund, you get to own a basket of stocks or securities. You can spread your investments across a wide range of funds depending, again, on your goals, time-frame and risk appetite. So, you could have a mix of large-cap equity funds, hybrid funds, mid-cap funds and debt funds in your mutual fund account to balance risk and return.
  8. Choose between SIP and lump sum: When you open a mutual funds account, you’ll wonder if you should make a lump-sum investment or invest small amounts regularly through a systematic investment plan (SIP). You can make a lump-sum investment if you have a substantially large amount of cash at hand. If you want to begin small, choose a SIP. Read more about SIP here.
  9. Make a start: Investing is a long-term process. But you must make a start. Begin small with as little as Rs. 500 in a SIP. Regular, disciplined investing can help you achieve your financial goals in a hassle-free manner.

If you wish to start today and open free a mutual fund account, download our app and get started.


digibank offers Mutual Funds that are instant, paperless, signatureless – even transaction fee-less! What’s more? You get to choose from 250+ Mutual Funds across 15 top-performing asset management companies. So why wait? Login to digibank (app or internet banking) and start investing in a flash with instant Mutual Funds on digibank.

Read up more on Mutual Funds here

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



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