Fund Basics: Ways to buy mutual fund units

Are you a first-time investor in mutual funds with not much of an idea how to go about investing in funds? This week's Fund Basics explains the various options available to buy units of mutual funds and whom you should approach for this purpose. The Q&A also explains how new fund options are different from existing funds and how units are allotted.

What are various ways to buy MF units?

MF units can be bought by:

Directly subscribing to the fund and handing over the cheque and application form to the Customer service centres of the Asset Management Company (AMC) or the Registrar and Transfer Agent (R&T), who process all transactions.

Going through a financial advisor;

Subscribing online through the portals of the AMC or the R&T or the distributor

Through the stock exchanges if the investor has a demat account with a depository participant.

Can one buy units without an agent or broker?

Yes one can buy units without an agent or a broker by subscribing directly.

An intermediary is normally an advisor who is informed about the various options and suggests schemes that would most suit the client. He charges a fee for this service from the subscriber.

How can one buy existing funds?

Buying into an existing fund is simple and any of the above means can be used for subscription. Selection of the fund is the first step in buying into a scheme. The selection would depend on the nature of the scheme vis-à-vis the individual's own goals, appetite for risk, ability to hold for long periods, need to encash the units at any time and the performance of the scheme.

Is the allotment of units guaranteed?

Most times, the allotment of the units upon subscription is guaranteed, However, there may be schemes when the fund manager restricts the allotment of units. The allotment is then done on pro-rata basis, which means they would be allotted in proportion to the amount invested.

What is an NFO?

NFO is a “New Fund Offer” which is a new scheme launch by a Fund.

The Fund invites subscriptions from investors to buy units of that scheme. This is done by advertisements, and road shows; direct mailers to investors and other means of campaign.

The New Fund is usually open for a specific period and investors can to subscribe within that time.

If it is an open-ended scheme, investors can also buy the units after the fund opens soon after the NFO period. This is however, not possible in the case of close-end schemes.

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