How Safe is Online Investing?

Investing in mutual funds online is as safe as net banking. DSIJ explains how to invest online and what precautions should you take. 

The month of July 2018 happens to be the 50 th consecutive month when the domestic mutual fund industry has witnessed a rise in the number of folios. It has increased from 4.76 crore at the end of FY16 to 7.55 crore at the end of July 2018, increasing at a CAGR of little more than 20 per cent. The folios are numbers designated to individual investor accounts and, therefore, one investor can have multiple accounts. It roughly indicates the number of investors investing in mutual fund schemes. 

Over the last few years, mutual funds have proved to be a lowcost and transparent way of channelising savings towards financial investments. The credit for such increase in the participation of retail investors goes to the continuous investor awareness programmes (IAP) by fund houses and the regulatory and industry bodies (SEBI and AMFI). These programmes helped enhance awareness about investments in mutual fund schemes, which in turn, is driving this growth. (Your favourite magazine, Dalal Street Investment Journal has also been doing IAPs since 2010 along with various fund houses with a vision of ‘Democratizing Wealth Creation') 

Despite such a huge increase in the number of mutual fund investors, the mutual fund penetration is still quite low in India. The total assets under management (AUMs) to GDP ratio of India stands at a mere 11% currently. This is against the global average of 55% and some of the countries like Australia and the US that have AUM-to-GDP ratios of over 100 per cent. Even if we compare the share of individual's financial savings that goes into mutual funds, it is just around 3 per cent for India. For developed countries such as USA, it is more than 20%. This shows the huge scope of growth for the mutual fund industry in India. 

One of the reasons for such low percentage of household savings going into financial saving is lack of knowledge and access to investments in mutual fund. We (Dalal Street Investment Journal) have been travelling to every nook and corner of the country to increase the awareness about mutual fund investment. What we have found that many of the investors who want to invest in mutual fund are wary of making investment online. They hesitate to invest online because they are afraid that they could become a victim of some fraudulent activity and all the cash and savings accumulated over a life-time could disappear from their accounts. 

Is it safe to invest online in MFs? 

The advent of internet has changed the way we do our financial transactions. Investing has not remained untouched by the internet. It has become an easy and inexpensive way to do your research and invest online. The only problem is that it also gives fraudsters an opportunity to carry out their fraudulent activities. The most common ways of doing this is posting a message on an online message board, entering a discussion in a live "chat" room, or sending mass e-mails, elicit responses, collect details of your bank accounts and other KYC details and then execute the fraudulent transaction. 

However, if you remain a little cautious in your online activities, investing online in mutual fund is ABSOLUTELY SAFE. Most of the fund houses website use SSL technology to ensure that the information transmitted between you and the fund house across the internet is safe and secure. Secure Sockets Layer (SSL) is a common and the most effective protocol for sending confidential information securely over the internet. SSL works by using a private, mathematical key to data that is transferred between your web browser and the website you are visiting. This digital security certificate generally has one 128-bit encryption level. 

Online investment in mutual fund can be done through the websites of respective mutual fund houses or some of the mutual fund broking sites. The only difficulty is that many of these broking sites offer only ‘regular' plan and not ‘direct' plan. We have been always recommending investing in a ‘direct' plan. According to SEBI regulations, every MF scheme needs to have at least two versions. One that has commission embedded in it, which is a ‘regular' plan, and the other, the ‘direct' plan that does not have any commission in it. Hence, in the long run, the 'direct' plan will generate better returns than the ‘regular' plan. On an average, regular plans charge 0.75-1.25% higher expense ratio than the direct plans. Nevertheless, regular plan should be preferred by you if you know the risk and returns characteristics of the fund. 

What is online investment? 

It is a secure online transaction facility offered to mutual fund investors, whereby they can login to the website of fund houses and transact online.

Is investing online safe? 

Yes, it is completely safe, provided you remain cautious and do not fall prey to any phishing activity. 

What are the documents or agreement required to open an online transaction account? 

If you are KYC compliant, you do not need any document. 

How will I know I am KYC complaint? 

You can visit www.cvlkra.com/kycpaninquiry and check whether or not you are KYC compliant by using your PAN number. 

What transaction can I execute online? 

You can buy through lump sum payment or through SIP, transfer or withdraw through STP and SWP, redeem and switch through online.

Will I be charged for availing this facility? 

No. The online investing facility is completely free on respective websites of the fund houses. 

Is there any limit in the investment amount for online transaction? 

There is no limit specified by fund houses for online transactions. However, some of the banks maintain transaction limits on their net banking facility. Therefore, you need to check that with your bank. 

But before you invest online, you need to be KYC compliant. If you have invested earlier in mutual fund even in physical form, you can visit www.cvlkra.com/kycpaninquiry and check whether you are KYC compliant by using your PAN number. Once you confirm that you are KYC compliant, you can easily transact online with any of the mutual fund houses. You can do all the transactions online such as investing lump sum and through systematic investment plan (SIP), systematic withdrawal plan (SWP), systematic transfer plan (STP), switch, redeem, etc. You can invest in every fund (except closed-ended fund) offered by a fund house. Also, the exchange traded fund (ETF) has to be bought through some broker through your trading account. You can also use https://www.amfiindia.com/ investor-corner/online-center/invest-online.html to directly go to the online investment portal of individual AMCs However, if you do not wish to go to individual mutual fund house websites, you can avail some of the common online platforms such as MF Utility through which you can invest in multiple schemes of any asset management company (AMC)..