What you need to start

A lot of people put off starting because they imagine a thick folder of paperwork. There is no folder. To invest in mutual funds in India you need three things, and if you have a bank account you almost certainly already have all three. This article is the list, and — more usefully — why each item is on it, because the “why” tells you which corners you can and cannot cut.

The whole list

• A PAN (Permanent Account Number).
• An Aadhaar, to complete your KYC.
• A bank account in your own name.

That is it. With those three, plus the one-time KYC that the Aadhaar lets you finish, you can invest. The rest of this article is what each one is doing there.

Why a PAN

The PAN is the number the whole system keys on. Your investments, the gains you eventually book, and the tax that follows are all tied together through it. Without a PAN there is no way to attribute an investment to a person, which is precisely why the rules require one before you can put money in.

It is worth saying plainly that this is not optional and there is no lighter version of it. A PAN is the one item on this list with no substitute.

Why an Aadhaar

The Aadhaar is not there to invest with directly. It is there to get you through KYC — the one-time identity check — because it carries both a photograph and an address, and so proves who you are and where you live in a single document. Other identity and address proofs can be used, but for most people the Aadhaar is the path of least resistance and enables the quick online routes.

KYC is a topic in its own right, and the routes and their limits are worth understanding before you pick one. We cover them in completing your KYC.

Why a bank account — and why in your own name

You need a bank account for the obvious reason: it is where the money comes from when you invest and where it returns when you redeem. The part that trips people up is the “in your own name” condition, so it is worth being exact about it.

Mutual fund investments must be funded from, and paid back to, a bank account that belongs to the investor. You generally cannot invest in your own name using someone else’s account, and the proceeds will not be sent to a third party’s account. This is a deliberate anti-money-laundering control: the money must trace to the person who owns the units. There are narrow, defined exceptions — a parent or guardian investing on behalf of a minor is the common one — but the default rule is that the account and the investor are the same person.

The practical upshot: use an account that is yours, or a joint account you are a holder of, and the money flow will simply work.

What you do not need

Just as useful as the list of what you need is the list of things people assume they need and do not:

• A demat account. Shares need one; mutual fund units do not. Your units are held as a record with the fund house’s registrar and appear on a statement. You can choose to hold them in demat form, but it is an option, not a requirement.
• A large amount of money. There is no minimum wealth to clear. A regular monthly investment can start at a figure most people would not think twice about — the point is to begin the habit, not to arrive with a lump sum.
• A broker or a trading account. A distributor or a direct platform is enough. You are not buying shares on an exchange.

Once you have the three

With a PAN, a completed KYC via your Aadhaar, and your own bank account, the mechanics are done and the only real questions left are the useful ones: what you are investing for, over what horizon, and how much a month you can sustain in a lean month rather than a good one. Those are the questions what a mutual fund is and the rest of this series are about.

If you want a hand getting the paperwork straight the first time, that is one of the things we help with — at no charge, and without being told what to buy.