What are Direct Mutual Funds?
The types of mutual funds that include no involvement of third party agents like brokers or distributors and also are directly offered by any fund house or Asset management company are known as direct mutual funds.
Investing in Direct Mutual Funds is quite easy, if you want to go for an online method then you have to visit the Asset Management Company or with the Registrar & Transfer Agent (R&TA) website and choose a mutual fund and then have to follow the next steps. Similarly, if you want to take the offline method then you only need a registrar and a transfer agent. They will guide you through.
What is the difference between Direct and Regular Mutual Funds?
If you’re wondering about this question and have any confusion, then this answer would surely clear it out. Every mutual fund comes in 2 different versions, namely direct mutual funds and regular mutual funds. The basic difference between the two is that the regular version has a distribution commission, while the direct one does not.
But that’s not the only difference! There is much more to focus on as an investor:
- Returns- If spoken about returns, direct mutual funds provide much better returns than the regular ones. The reason is that direct mutual funds are bought from the AMC or R&TA, without any third party involvement.
- Intermediary-This is absent in direct mutual funds whereas it is present in regular mutual funds. In case of the direct, one can easily buy from AMC or other online websites, but for the latter one, a broker is present as an intermediary who connects the investor with the AMC and receives a commission.
- NAV – Since regular mutual funds have a higher expense ratio the NAV is lower. On the other side, direct mutual funds have a lower expense ratio since this saves commissions.
- Expense Ratio- This is the amount which is deducted from the investor’s returns for administrative expenses, in case of direct mutual funds. But since there is a concept of commission in regular mutual funds, these have a higher expense ratio.
- Simplicity-Direct mutual funds are quite easy and simple as there is no concept of 3rd party involvement, whereas regular funds can sometimes be confusing.
- Credibility- When the concept of commission and advisory from the third party comes, there are chances that one might get misled. There are cases of complaints that are often filed against the agents or advisors because they misguide the investors and only think of their commission. But in case of direct mutual funds, there is no such concept.
- Control- In case of a direct mutual fund, the investor has full control of his/her own money and neither has to give any commissions nor wait for advice from the third party. In some cases especially for old people who are not much familiar with this concept, external help may be required, but it would be better to opt for some trusted organizations online rather than any external sources.
So keeping in mind all the above points, next time if you are planning for mutual fund investments, please try to go for Direct Mutual funds.
You may consider investing in the SBI Focused Equity Fund and other similar offerings which enable long-term capital growth for investors when they deploy money in equity. At least 65% of the fund corpus is demarcated for investing in equity, thereby ensuring higher future returns. Funds should have a bottom-up approach towards picking stocks while investing in entities spanning diverse market capitalizations and business sectors. Investors have often earned handsome returns from such investments, topping out at 15-17% over a sustained duration. You have to be patient and focus on long-term goals instead of looking at short-term performance.
Methods to Invest in Direct Mutual Funds
You can take both offline and online routes of investing in Direct mutual funds. The offline method is where you have to manually fill and submit a mutual fund form. If you are not into the hassle of a physical visit, you can buy direct mutual funds online. It is more convenient and hassle free.
Visit the nearest office of the asset management company whose fund you have selected by locating it on the AMFI website. You can also visit the local offices of RTAs like Cams and Karvy as they have a majority of mutual fund houses registered with them.
Upon reaching the center, you will be asked to complete your KYC ( Know Your Customer) process if you are not KYC compliant. You would also need to carry a few other documents for in-person verification purpose including:
- Self-attested copy of PAN card
- Self-attested copy of address proof
- Common application form or SIP form. If you go with the SIP route, you will also need to fill a NACH Mandate (National Automated Clearing House), which will give the asset management company permission to auto-deduct the SIP amount from your linked bank account from the starting date of SIP.
- Once you have submitted the required forms and documents, you would also have to submit a cheque or demand draft in the name of the AMC of the investment amount. You will then be allotted the folio number for the investments made and an account statement once the transaction is initiated.
- A similar process is followed at the local RTA office as well.
As mentioned earlier, offline methods to buy direct mutual funds would require you to physically visit the branch and fill out forms for any action pertaining to your investments such as redeem fund units or stepping up SIP amount, etc.
If you are a novice mutual fund investor, you will have to fulfill the KYC formalities here as well. This is, however, a one-time process; thus, you can use this information across all platforms to invest in Direct Mutual Fund Plans. Your PAN is the most important thing here, as all Mutual Fund companies check if your KYC details are linked with your PAN.
You can invest in your desired Direct Mutual Fund investment schemes online in several ways – i.e, with the Asset Management or Mutual Fund Company or with the Registrar & Transfer Agent (R&TA).
Through The Asset Management Company Website
You will have to choose a Mutual Fund Scheme and then visit its official website and follow the below given instructions:
- Firstly, you will have to set up an account with the Mutual Fund House or the AMC.
- Select The Scheme
- Choose your investment Details
- Next, you would have to verify the details you have entered in the above step. Make sure to check whether all the details are in line to avoid any problems later.
- Some AMCs might need you to verify your application form submission with the help of OTP that will be sent to your registered email id or mobile number.
- Lastly, finish the transaction by making the required payment with the method you had chosen when filling up your details. Upon completion, a confirmation will be forwarded to your registered number or email ID.