What are the steps of the Mutual Fund Buying process?

One question that bothers investors is “How to Invest”, how to start investments, what should be the first step and successive steps, how to know whether the investments done are good or bad.

Through this article, we are trying to address these predicaments of investors and help them to understand the structure of the portfolio and how to create a buying process for themselves.

There are multiple approaches to investments, one could straightaway start investing some amount
(part of his monthly or yearly savings) on a regular basis or one can invest his previous savings at one time (lump sum).

Some investors even do a periodic investment as and when they have surplus funds, few have monthly investments in the form of SIP or recurring deposits.

Investors choose various channels to invest as well, some would opt to invest through their banker, some would opt for other intermediaries some would take the help of wealth managers or financial advisors and some would directly invest through the fund houses managing the funds.

There is no right or wrong approach but ideally speaking it should be simple, easy to manage, and convenient.

But one thing that an investor should take care is that there is a proper structure to the entire investment process and a definitive approach towards a buying process.

We have laid down a 7 step “how to” process for investment to make the job of investors easy. One can follow these steps and structure the entire investment process.

1. Identify your goals

This is the first and foremost step towards designing a process of designing a portfolio and following a structured approach. Not only one has to identify a goal, but one also prioritizes goals and quantifies them.

 In my previous article, I have mentioned “S.M.A.R.T.” goals one can refer to that process for making a goal that is real, attainable, and quantified.

An unknown goal would be like going on a long journey without any purpose. An example of such a S.M.A.R.T. goal identification would be –


Name Priority (1 being the highest) Time duration (years) Amount required
(in crore)
Goal 1 Retirement 1 25 4.5
Goal 2 Son’s education 2 10 1.1
Goal 3 Daughter’s marriage 3 15 0.77
Goal 4 Leisure trip 4 5 .25


The goal has to be prioritized in the order of their necessity for the investors.

In the above case, it is quite clear that for the investor Retirement is the biggest priority and has the longest duration as well as biggest in terms of value (4.5cr) whereas Goal 4 i.e. Leisure trip ranks lowest in terms of priority and the duration is less as well.

2. Take care of expenses

In view of the above goals and have an investible surplus to deploy towards the goals– just by identifying a goal will not solve the purpose one needs to be disciplined enough to save for these goals and make them realistic and achievable.

For most of us, we have a limited source of income and unlimited expenditure (non-discretionary and discretionary).

As an investor one has to disciplined regarding his expenses, understand and bifurcate mandatory expenses, necessary and important expenses, unnecessary expenses, and expenses that need to be avoided.

3. Risk Profile

Once an investor has identified the goals and has an investible surplus allocated for the specific goals one thing that is very important is not to get carried away and start investing but rather one should try to understand the risk profile (risk-taking ability) of the investor.

 Investing without understanding the risk profile could be detrimental to the achievement of goals.

As markets tend to be volatile and if one doesn’t have the right understanding of the risk of the investments they might be perturbed by the volatility of their investments.

Just as investors can be risk profiled so can the products and it’s very important to match the risk profile of the investors( in alignment with their goals) with the risk profile of the products so as to optimize one’s portfolio allocation towards specific goals.

For example a short term goal like buying a car in 3 years (conservative approach towards this goal should be ideal) if one invests in equity, it might be subject to high volatility and might even lead towards nonachievement of the goal, hence one should be very diligent in understanding the risk-taking ability.

4. Mapping of savings to the identified goals

Once we have identified goals and are aware of the savings and risk profile, now is the time to map the savings to goals accordingly.

This mapping can be done keeping the overall risk profile of an investor in the picture or different goals can demand different risk profiles as well.

For example in the table above if we assume the risk profile of the investor to be moderate the goal such as goal 1 (retirement) can take a slightly aggressive call keeping in mind that the duration to achieve the goal is quite high (25 years) and a small amount of risk will help in achieving the goal easily.

Whereas for goal 4 i.e. leisure trip he can take a bit conservative approach so as to negate the short-term volatility.

5. Asset Allocation

Once the above steps are completed an important stage in the entire process is Asset Allocation. This pertains to identifying the asset class where the money should be invested. The deployment could be done in Equity, debt, a combination of equity and debt, Real estate, or Gold as an asset class.


The table shows the various Asset allocation strategies depending upon the risk profiling of an investor. For a Risk-Averse investor, the ideal asset allocation should be 50% in cash and cash equivalent, 30% in fixed income (short term), 15%, and 5% in Fixed income (long term) and gold respectively. 

Similarly, there are different allocation strategies for different risk profiles be it Conservative, Moderate, Aggressive, or Very Aggressive.

6. Execution

After doing the entire groundwork regarding goal identification and mapping of goals to savings and asset allocation it is important to identify a way to execute the transactions.

 The investors have various options to do so, either they can take the help of any intermediary like bank, stockbrokers, independent financial advisors, or even the asset management companies or they can go for a direct route and take direct options of mutual funds directly through the fund houses (yes! it saves cost and helps in attaining the goal early with the power of compounding).

Alternatively, investors can also opt for the DIY (Do It Yourself) approach wherein the investor is charged advisory fees and is advised to opt for direct mutual funds, and proper financial planning is done.

7. Review

The job is not finished after executing the transactions, it has to be periodically reviewed for any underperformance or change in strategy or if any goal is approaching and they are any asset allocation that is required or even to book some profit depending on the investment strategy.