Mutual Funds

Your Fund Portfolio

Anand Kalyanaraman | Updated on January 19, 2020 Published on January 19, 2020

I would like to know how to start investing in direct plans of mutual funds.

Ramesh P

There are two ways of investing in mutual funds: regular plans and direct plans. In regular plans, the investment is routed through an intermediary. The intermediary could be an online or an offline player, and includes brokers, banks and various distribution platforms. In direct plans, the investment is made directly without routing it through an intermediary.

When you invest in the direct plans of mutual fund schemes, your returns will be better than what you will get in the regular plans of those schemes. That’s because the expense ratio of direct plans is lower than that of regular plans. This is because you save on the commission paid to intermediaries. The lower the expense ratio, the higher the returns. Over longer periods — of five years or more — the difference in returns becomes more apparent.

From the point of higher returns, it makes better sense to go for direct plans than regular plans. But some points of caution here. One, direct plans are typically suitable for financially savvy investors who can make their own decisions on when, where and how to invest, shift and exit.

Also, you can choose to get investment advice from a fee-only registered investment advisor and then execute the transaction through the direct plans on a platform of your choice. For investors who need hand-holding in investment advice and transaction execution, regular plans in which informed intermediaries could offer guidance may be more suitable.

There are many ways of investing in direct plans. One, you could invest directly with the mutual fund house — either online through their website or offline at their offices. Two, you can invest in direct plans through the mutual funds’ registrar and transfer agents (RTAs), such as CAMS and Karvy, online or offline. Three, you could invest through the portal of Mutual Funds Utility (MFU), a shared infrastructure platform of mutual funds in India. Four, some online portals of private companies also offer direct plans, some for free and some for a fee. Unlike stocks, you do not need a demat account to buy and sell mutual funds. Online banking, though, will be needed if you want to invest in direct plans through the online route.

Not all online portals that offer mutual fund investments are direct plan providers; many are intermediaries offering regular plans. For instance, investments through websites of banks and brokerages that allow you to invest in mutual fund schemes will be counted as regular plans. Many online platforms also offer only regular plans.

According to the Association of Mutual Funds of India, while filling a mutual fund application form — whether online or physically — ensure that you tick/select the ‘Direct Plan’ box if you want to invest in a direct plan.

If you are choosing the physical mode, it is advisable to strike out the box for distributor code at the top of the application form or write the word ‘Direct’ in the box.

Before you invest in a mutual fund (direct or regular plans), you need to first get your KYC compliance done by submitting the requisite documents and completing the verification. This is a one-time process though and you can then invest across fund houses and schemes using your permanent account number (PAN) that is linked with your KYC.

The advantages with many regular plan platforms include ease of transaction, record-keeping and real-time reporting of investment performance. With direct plan platforms, you will have to do it yourself, and in many cases, have to keep track of record-keeping and investment performance on your own. In any case, the Consolidated Account Statement (CAS) provided by depositories such as NSDL and CDSL on a monthly basis (if there are transactions) or on a half-yearly basis, gives details about your financial assets including mutual funds.

Some research platforms allow investors to upload their portfolio details to get a consolidated view of their investments; this could help investors in direct plans.

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Published on January 19, 2020
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