Direct Mutual Fund Plans: Invest More, Pay Less

Regular Plans

Investing in Regular plans in mutual funds means you will typically go through a Mutual Fund Distributor (MFD), which could be an individual, a brokerage firm, or a bank. These distributors offer support with the administrative side of your investment. However, they also charge a commission for their services, which is incorporated into the fund's expense ratio (the cost you pay for owning the fund). As a result, the total cost of investing in a regular plan is relatively higher than that of a direct plan.

Direct Plans

Direct plans in mutual funds allow you to invest directly through an Asset Management Company (AMC). You can purchase a direct plan from the AMC website or app, at a physical AMC branch, through their Registrar and Transfer Agent (RTA), or on a third-party investment platform. Since there are no intermediaries or commissions involved, you may end up paying less for the same scheme. Over time, these cost savings may make a noticeable difference to your returns.

What makes Direct Mutual Funds attractive?

1. Cost-effective, with better long-term growth potential

You don’t have to pay commissions to intermediaries an agent. Same fund manager, same portfolio but different fees. Lower costs in direct plan will help you accumulate more wealth over time. Even small differences in expense ratios when compounded over the years may enhance your portfolio’s growth.

2. Make your own investment choices

If you buy a direct mutual fund plan, you are in control of your investment choices. This means you will learn more about where and how to invest your money, which will empower you as an investor. There are investment platforms that offer educational resources and can guide you through this journey.

Is it challenging to invest in direct mutual fund plans?

Not at all. In fact, it is simpler than you might think.

You do not need to be a financial expert to invest in direct plans; just follow a few simple steps.

• Understand the different fund categories like equity, debt, hybrid or index funds.
• Keep an eye on your investments periodically to ensure they stay aligned with your investment objectives.
• Take ownership of your investment journey – practice discipline and patience. Most importantly, allow time to work in your favor.

There are several tools available to facilitate direct investments.

• Most Asset Management Companies have websites and apps that give information like fund factsheets, returns, and detailed breakdowns of portfolio of securities where your money is invested.
• Some online platforms now offer direct plans and tools like comparison charts, ratings, and SIP calculators to make your decisions easier.
• Setting up a Systematic Investment Plan (SIP) automates your investment journey. With just a few clicks, after you’ve selected a direct plan, your investments can be set to continue at a chosen frequency (e.g. monthly) effortlessly.

Getting Started with Direct Mutual Fund Plans

1. Check the scheme name

Select a mutual fund and before you invest check the scheme name. Direct mutual funds plans have “Direct”, “DP” or “Dir” written in the scheme name. Regular funds mention ‘Regular’, “RP” or ‘Reg’ in the scheme name.

2. Purchase platform

a. If you invest in a mutual fund through an AMC’s official website or an app, you are likely to be investing in a direct plan. If you need guidance on which direct plan is right for you, get in touch with a Registered Investment Advisor (RIA), who can provide expert advice, share timely investment updates, and help you manage your investment portfolio.

b. If you invest in a mutual fund through a third-party portal, distributor or a broker, then it is most likely to be a regular plan. Do check the scheme name for direct plans before you invest.

3. Check your mutual fund statement

Review your consolidated mutual fund statement (e-CAS) provided by either NSDL or CDSL. If it shows commission amounts , you are on a regular plan. Also note that direct plans have a lower expense ratio, and a relatively higher Net Asset Value (NAV), compared to their regular counterparts.

Bottom Line

Direct plans in mutual funds are most suited for anyone who wants to save on their investment expenses, thereby achieving potentially higher returns compared to investments via a distributor. Put differently, buying direct plans is a smart choice if you are happy to do a little bit of work to make every rupee count.

Disclaimer:

The information contained in this article is for general purposes only and not an investment advice in any manner. Investors may seek professional advice before taking any investment-related decisions.

Mutual Fund investments are subject to market risks, read all scheme related documents carefully.

SIP does not assure a profit or guarantee protection against loss in a declining market. The information herein is meant only for general reading purposes and the views being expressed only constitute opinions and therefore cannot be considered as guidelines, recommendations or as a professional guide for the investors. The article has been prepared on the basis of publicly available information, internally developed data and other sources believed to be reliable. The Sponsor, the Investment Manager, the Trustee or any of their directors, employees, affiliates or representatives (“entities & their affiliates”) do not assume any responsibility for, or warrant the accuracy, completeness, adequacy and reliability of such information. Investors are suggested to rely on their own analysis, interpretations & investigations. Investors are also suggested to seek independent professional advice to arrive at an informed investment decision. Entities & their affiliates including persons involved in the preparation or issuance of this article shall not be liable in any way for any direct, indirect, special, incidental, consequential, punitive or exemplary damages, including on account of lost profits arising from the information contained in this article. Investor alone shall be fully responsible for any decision taken based on this article.