Direct Plans of Mutual Funds – all that you want to know

Investing in direct plans of mutual funds are suddenly a hot topic of discussion. Every mutual fund investor wants to know what direct plans mean and how they invest in these direct plans of mutual funds.

This post attempts to bring out the frequently asked questions and possible answers on these plans.

Be ready to get more informed.

What is the difference between regular plans and direct plans of mutual funds?

Since Jan 1, 2013, all mutual fund schemes now come in 2 variants – a regular plan and a direct plan.

A regular plan is one in which you invest in through a mutual fund distributor and for which a distributor earns a commission, paid out by the mutual fund company from your money.

In case of direct plans, you can bypass the distributor, basically NO distributor, and invest directly with the fund house. In the bargain, you save all the brokerage and commission that are otherwise paid to a distributor in a regular plan.

What is the benefit of investing in direct plans of mutual funds?

The idea behind direct plans is to offer the informed investor a way to compensate herself for the work that otherwise would be done by a distributor. By investing in a direct plan, she does away with the cost of distribution and benefits in terms of higher returns.

This difference of return between a regular plan and a direct plan can be upto 1.25%. This can, over time, add a large amount of wealth to the investor’s portfolio.

However, caution has to be exercised in making selection of funds. As an investor, you should be able to spend the time and effort towards building your portfolio and monitoring it on a regular basis.

If you are not upto it, you can hire the services of a professional investment advisor. For a fee, the advisor can understand your requirements, build a portfolio for you and help you track and review it on an ongoing basis.

This way you would be able to make the best of both the worlds. The best part is that you, as an investor, decide how much you want to pay for the service and not the mutual fund company. It totally aligns the interest of the adviser to your goals.

The power is with you.

What are the charges or fees or commissions in a direct plan?

If you are doing investment in direct plans by yourself using the registrars or websites of AMCs, there are absolutely no additional charges, fees or commissions payable to anyone.

In regular plans, the cost of such commissions is inbuilt into the expenses of the mutual fund and is paid by the mutual funds directly to the distributor. Typically, you don’t have to shell out anything separately.

How do you know if you have invested in direct plans or regular plans?

This one is simple. Whenever you are selecting your fund, it will have the plan name mentioned within it. So for example, if you wish to invest in XYZ Equity Fund, it will have 2 variants.

XYZ Equity Fund – Direct Plan

XYZ Equity Fund – Regular Plan

Check out the scheme name of your existing funds and you will know which plan you are invested in. Even when you are investing fresh, you should select the scheme name with “direct plan” mentioned in it.

Can you invest in direct plans of mutual funds through your bank / distributor?

No, you cannot. Your friendly neighbourhood distributor, the online distributors like FundsIndia, Scripbox, ICICI Direct, or even your banks – HDFC Bank, ICICI Bank or Axis Bank are all distributors, who receive a commission for the investment you make through them. With all of them, you can invest in regular plans only.

How can you invest in direct plans of mutual funds?

There are a few ways to do it. One, you can make a paper application directly with the registrars of the mutual funds such as CAMS, Karvy, Franklin or Sundaram BNP for the scheme that you want to invest in.

Two, you can go to the mutual fund’s website and create your account there and invest online. Some of the mutual funds do not allow you to invest directly with them for the first time. You will have to submit a first time physical application at their or registrar’s office.

Then comes the best option. MF Utilities or MFU. This is a mutual fund industry initiative, where you can access and invest in almost all of the direct plans of mutual funds from a single login. And its’ FREE too. All you have to do is generate a Common Account Number with them and subsequently request for activation of online transactions. That’s it.

Or, you can log on to Unovest. With UNOVEST you can invest in direct plans of top 25 mutual fund companies.

Not just that, you can even track your existing mutual fund portfolio and transact using your existing folios. 

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Read the FAQs here.

If you have any further questions about direct plans or investing in direct plans of mutual funds, post in the comments. Unovest would be happy to help with the answers.