How Can a HUF Member Invest in Mutual Funds?

Putting money in various mutual funds is a necessity for individuals as well as Hindu Undivided Families (HUFs). These investments help them to save money, prevent unnecessary expenses as well and grow their wealth. There are numerous ways of investing in HUF mutual funds.

Keep reading to learn about the different ways of investing in mutual funds for Hindu Undivided Families.

The following are some ways in which HUF can invest in mutual funds:

1. Direct offline investments

You can visit the nearest branch of the fund house along with some essential documents like your identity and address proof, cancelled cheque and passport-size photographs. There they will provide you with an application form that you will need to fill and submit along with these documents.

2. Offline investment through brokers

A broker is a person who provides you with valuable suggestions and assists you throughout the investment journey. So, you can hire them to make your investment journey easier. However, remember that they will charge a small amount of the total investment amount.

3. Through various applications

There are a variety of apps that you can download from online stores, which makes the investment process easier. You can easily buy and sell units of the best-performing assets as well as view your account statements instantly.

4. Through the official website

Many companies offer HUF mutual fund online investment to ease and hasten the process. You can visit these websites and invest in funds to start receiving profits.

After selecting the convenient mode, you can proceed with your investment journey. You can begin this process with the KYC formalities.

Completing the KYC formalities happens to be the primary step towards investment in mutual funds. For conducting the KYC process, the government has appointed the Central Registry of Securitisation Asset Reconstruction and Security Interest of India (CERSAI).  They have established a central KYC registration to simplify the entire process.

The head of HUF, also known as the Karta, will have to fill out the KYC form under his name in the non-individual category. Moreover, they should mention 'Hindu Undivided Family' in a bracket beside it so there is no room for confusion. Also, you will need to upload certain documents during the registration process.

Once the KYC registration is done, the Karta will receive a 14-digit KYC Identification Number (KIN) on their email ID after two weeks of the verification process. Upon receiving the KIN number, you can proceed with the next steps of the application process.

Following are some of the essential documents that you will need when investing in mutual funds:

• Permanent Account Number copy of the HUF 
• A passbook or bank statement of the HUF
• Submit Foreign Account Tax Compliance Act (FATCA) form as well
• List of coparceners or deed of declaration of coparceners
• Proof of address, proof of identity, and PAN copy of Karta
• Karta’s Ultimate Beneficiary Owner (UBO) details

You must note that every document should be self-attested by the Karta with HUF stamp, as he operates the HUF solely.

Below are the steps that members of HUF need to follow when investing in mutual funds:

Step 1: Identify Your Purpose of Investment

The first and foremost step when investing is determining its purpose. You can start your investment journey for any purpose such as a child's education, buying a house, wedding, retirement, etc. This will help you in deciding the investment amounts, and options based on risk, lock-in period, payment method, and more.

Step 2:  Know About the Schemes Available

There are innumerable fund options that you will come across when investing in mutual funds. Here lies the real challenge of selecting the appropriate fund options based on your risk appetite and returns. So, take your time and decide the right option that aligns with your objective of investment.

Step 3: Consider Various Risk Factors Associated

Mutual fund investment follows the policy of ‘High risk, high returns’. So, if you want increased returns from your deposits, you will naturally have to deal with the increased risk of losses. On the contrary, if you want to keep the risk factor low, go for schemes that offer you lower returns than others.

Step 4: Determine the Allocation of Your Assets

When investing in mutual funds, it would be prudent to diversify your fund deposits. This implies instead of putting all your money in one fund, divide it among high-risk and low-risk options. Doing so will help you earn high when the market prices are rising as well as cushion you against losses when it is going south.

Step 5: Fill in the Application Form for Mutual Funds

Once you have finalised your choice of funds, proceed to fill in the application form. Here you will need to enter various details related to your purpose of investment, deposit amount, choice of funds, information on HUF, and more. Make sure to cross-check the data once you have filled up the application form, to avoid any errors.

Step 6: Start Your Investment Journey 

After filling up the application form, decide if you want to invest the money as a lump sum or in the form of an SIP. If you are choosing the lump sum option, you will need to pay the entire amount at once. However, if you want to go for SIP, you can automate the deposition of a small portion of your salary to your chosen funds.

Additionally, you should also keep the essential documents ready when investing in the HUF mutual fund.

Parking money in the HUF mutual fund provides families with immense opportunities. They can go for wealth creation that hastens the fulfilment of their financial goals. Also, they can pull out money anytime in case of emergencies.