Investing in mutual funds can be a simple and effective way to build wealth over time. Whether you're new to investing or already familiar with mutual funds, understanding the steps involved in buying and selling them is crucial. This guide will walk you through easy-to-follow steps for both buying and selling mutual funds, ensuring that you can make informed decisions and manage your investments smoothly.   

Easy Steps to Buy and Sell Mutual Funds

How to Buy Mutual Funds

Buying mutual funds is straightforward, and there are multiple platforms you can use. Follow these steps to purchase mutual funds efficiently:

Step 1: Determine Your Investment Goals

Before you buy a mutual fund, it's essential to define your financial goals. Ask yourself what you want to achieve with your investments:

  • Are you saving for retirement?
  • Do you want to build an emergency fund?
  • Are you planning for a large expense, such as a house or your children’s education?

Your goals will help you determine the type of mutual fund that suits you best, whether it's equity funds for long-term growth, debt funds for stability, or hybrid funds for a balanced approach.

Step 2: Choose the Right Mutual Fund

Once you know your goals, the next step is selecting the appropriate mutual fund. Consider the following factors when choosing a fund:

  • Risk Appetite: Are you willing to take on higher risk for potentially higher returns (equity funds), or are you more conservative and prefer safer investments (debt funds)?
  • Time Horizon: If you have a longer investment horizon (5-10 years or more), equity funds may be suitable. For shorter horizons (1-3 years), consider debt or hybrid funds.
  • Fund Performance: Look at the historical performance of the mutual fund over 3, 5, or 10 years to see how it has fared compared to its benchmark and peers. Past performance isn’t a guarantee of future results, but it can offer insights into the fund manager's consistency.
  • Expense Ratio: This is the annual fee that the fund charges to manage your money. A lower expense ratio means more of your money stays invested, so try to choose funds with lower fees, especially for long-term investments.

Step 3: Complete the KYC Process

To invest in mutual funds, you must complete the Know Your Customer (KYC) process. This is a mandatory regulatory requirement to verify your identity and address. Here’s what you need:

  • Documents: PAN card, address proof (Aadhaar, Passport, Voter ID), and a passport-sized photo.
  • Process: You can complete KYC online (e-KYC) through mutual fund platforms, or offline by submitting your documents at a fund house or a financial intermediary.

Once your KYC is verified, you are eligible to start investing in mutual funds.

Easy Steps to Buy and Sell Mutual Funds

Step 4: Select a Platform to Buy Mutual Funds

You can buy mutual funds through various platforms:

  • Directly from the Mutual Fund House: Visit the website of the mutual fund company and choose the “Direct Plan” option. This method usually has lower fees since it bypasses intermediaries.
  • Online Investment Platforms: Platforms like Groww, Zerodha Coin, Paytm Money, and ET Money allow you to invest in multiple mutual funds from different asset management companies (AMCs) in one place.
  • Through Your Bank: Many banks also offer mutual fund services, where you can invest in funds offered by different AMCs.
  • With a Financial Advisor: If you need help choosing funds, you can work with a financial advisor or distributor. Keep in mind that investing through a distributor may incur additional fees (commissions).

Step 5: Decide on Investment Mode

When buying mutual funds, you can choose between:

  • Lump Sum Investment: A one-time investment where you put a large amount of money into a mutual fund. This is useful if you have surplus funds and want to invest all at once.
  • Systematic Investment Plan (SIP): SIP allows you to invest small amounts at regular intervals (monthly, quarterly, etc.). This is a great option for building wealth gradually and benefiting from rupee cost averaging, which reduces the impact of market volatility over time.

Step 6: Make the Payment

Once you've chosen the mutual fund and investment mode, you can make the payment online via Net Banking, UPI, or debit card. If you opt for a SIP, you’ll need to set up an automatic debit from your bank account on the chosen date each month.

After completing the transaction, you will receive a confirmation, and the units of the mutual fund will be credited to your account based on the Net Asset Value (NAV) of the fund on that day.

How to Sell (Redeem) Mutual Funds

Selling or redeeming your mutual funds is just as easy as buying them. Here’s a step-by-step guide to help you redeem your mutual fund units:

Step 1: Log In to Your Investment Account

Go to the platform where you purchased the mutual fund units. This could be the mutual fund company's website, an online investment platform, or your bank’s investment portal.

Step 2: Select the Mutual Fund to Redeem

Navigate to your portfolio, where all your mutual fund investments are listed. Select the mutual fund scheme you wish to redeem or sell.

Step 3: Choose the Number of Units to Sell

When redeeming mutual funds, you have two options:

  • Redeem All Units: You can sell all the units of a particular mutual fund scheme at once.
  • Redeem Partial Units: You can choose to sell only a part of your holdings by specifying the number of units or the amount you wish to redeem.

The value of the units you redeem will be based on the current NAV of the mutual fund, which is calculated at the end of the trading day.

Step 4: Confirm the Redemption

After selecting the number of units or the amount you want to redeem, confirm the transaction. Depending on the platform, you may be asked to enter a transaction password or OTP (One-Time Password) sent to your registered mobile number for security.

Step 5: Receive Redemption Proceeds

Once the redemption is processed, the proceeds will be credited to your registered bank account. The settlement typically takes T+1 or T+3 days (T = Transaction day), depending on the type of mutual fund:

  • Equity Funds: Redemption proceeds are generally credited within 3 working days (T+3).
  • Debt Funds: Debt fund redemptions usually take 1 working day (T+1).
  • Liquid Funds: Liquid funds are the fastest to redeem, with proceeds credited on the next business day (T+1) or even the same day in some cases.

Before selling your mutual funds, be aware of the following costs:

  • Exit Load: Some mutual funds charge an exit load if you redeem your units before a specified period (usually 1 year for equity funds). Make sure to check the exit load policy of your fund to avoid unnecessary charges.
  • Capital Gains Tax: Depending on how long you held the mutual fund units, you may need to pay capital gains tax:
    • Equity Funds:
      • Short-term capital gains (STCG) tax (if held for less than 1 year): 15%.
      • Long-term capital gains (LTCG) tax (if held for more than 1 year): 10% on gains exceeding ₹1 lakh in a financial year.
    • Debt Funds:
      • Short-term capital gains (if held for less than 3 years): Taxed as per your income tax slab.
      • Long-term capital gains (if held for more than 3 years): 20% with indexation benefits.

Tips for Buying and Selling Mutual Funds

  1. Avoid Timing the Market: Trying to buy low and sell high is risky and often results in poor decisions. Instead, focus on long-term goals and regular investing through SIPs.
  2. Stay Informed: Keep track of the performance of your mutual funds, the fund manager's strategy, and market conditions. Regularly review your portfolio to ensure it aligns with your investment goals.
  3. Be Patient: Mutual funds, especially equity funds, are best suited for long-term investments. Selling too soon might prevent you from realizing the full potential of your investment.
  4. Watch for Redemption Penalties: Be mindful of exit loads when selling your funds. Selling after the exit load period ends can save you from unnecessary fees.

Conclusion

Buying and selling mutual funds is a simple process, especially with the variety of online platforms available today. By following these easy steps and making informed decisions based on your financial goals and risk appetite, you can effectively invest in mutual funds and manage your portfolio for the long term. Always remember to keep an eye on the associated costs, taxes, and redemption timelines, and stay patient for your investments to grow.