How to invest in Direct Mutual Funds in India?

Direct mutual funds were introduced by SEBI in India in the year 2013. The low-cost funds are slowly gaining popularity among Indian mutual fund investors. Thanks to new technology, individual investors are now investing a considerable amount in these funds. If you are planning to invest in direct mutual funds, here’s a complete guide for you..

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Mutual Funds

A mutual fund is a pool of money collected from multiple investors who share a common investment objective. A mutual fund is managed by a professional fund manager. All mutual fund schemes in India offer two plans- Direct and Regular.

Mutual funds in India comes in two plans – Regular and Direct. The regular plans are popular among investors, while direct plans are slowly gaining popularity. You buy regular plans through an intermediary, while you buy direct plans directly from the AMC.

Direct Mutual Fund

In a direct plan, you invest directly with the AMC (Asset Management Company), with no broker or agent to facilitate the transaction. Therefore, the direct mutual fund has a lower expense ratio as there is no commission or distribution fee involved.

Regular Mutual Fund

In a regular fund, you invest through an intermediary such as a broker, agent, distributor, a banker who is paid a distribution fee by the AMC. This is then charged to the plan. Therefore, the expense ratio is higher for a regular plan.

Difference between Direct and Regular Funds

Post-January 2013, every fund scheme comes with two plans: Direct plan and Regular plan. These are just two options to invest in the same fund scheme.

In the case of a regular plan, a distribution fee or commission paid by the AMC to the broker/agent. The amount of distribution fee varies between 1-1.25% per year. In the case of a direct plan, no such distribution fee or commission paid by the AMC.

Let us understand the differences between direct and regular plans with the help of the below chart.

The biggest difference between these two is their expense ratio. However, in a regular plan, a certified financial expert can help you to understand and manage your funds.

Who can invest in Direct Mutual Fund?

Anyone can invest in direct mutual fund. As there is no intermediary involved, they have to do your research and understand funds well-enough. However, a new investor may need professional and personal advice before investment.

Documents required

You must comply with the prerequisites for investing in mutual funds. You should have the following documents to complete your KYC if the KYC has not been completed earlier:

PAN card
Address proof
Identity proof
A passport size photograph

You can complete your KYC either online or offline.

How to invest in Direct Mutual Funds?

If you decide to invest in these funds, there are different ways. You can invest in these funds either offline or online.

How to buy Direct Mutual Fund online?

You can invest in these plans online through AMC portals, MF Utility, CAMS, Karvy, or RIAs portals.

How to invest in Direct Plans of Mutual Funds Offline?

If you wish to invest offline, you need to visit the offices of the AMCs or their RTAs such as CAMS and Karvy.

How to invest in Direct Mutual Funds online?

Investing through an online portal is the easiest way of investing in these plans. Just visit the website and follow the instructions. There are various online platforms through which you can invest in these plans.

Asset Management Company portals

The portals maintained by AMCs are an easy option. The transactions on these websites are free. However, if you are investing across multiple AMCs then you need to go through their portals individually.

CAMS and Karvy portals

Both CAMS and Karvy facilitate online investment through their website and Apps.

MF Utility portal

MF Utility is a transaction aggregating portal. It is a shared platform of different fund houses. It is a single-window for you to invest across 27 AMCs.

RIAs portals providing Robo Advisory

SEBI Registered Investment Advisers (RIAs) portals provides Robo advisory. These platforms use technology and provide customized investment recommendations to investors without any human intervention.

To Conclude

Due to the difference between the expense ratio of direct and regular plans, the direct plans will continue to generate greater wealth. However, these funds are best suitable for investors who are market and investment savvy.

As mentioned above there are different ways to invest in Direct Mutual Funds online. Each platform has its advantages and disadvantages. However, I invest through respective AMC websites. Therefore, choose a plan and start investing using a platform that is best suitable for you.

Note: This post was originally published on June 9, 2019 and has been completely updated for accuracy and comprehensiveness.