What is Direct Option in Mutual Fund?

Mutual fund is a preferred investment product to achieve the long term goals. It also constitutes the major part in one’s investment planning strategy. Mutual fund investors have an option to invest in MF schemes through direct route wef 1st January, 2013. Investor can buy units directly from the AMCs and there is no need to approach distributors, agents etc for buying MF schemes through Direct option.

 

What are the benefits of Direct option in Mutual Fund?

When you invest in a direct mutual fund plan, there will be no third party involved between investor & AMC. As a result it helps to reduce the costs associated with the scheme, mainly on account of non requirement of commission payment to the distributors. So Direct plan option will come with the lower expense ratio as compared to other normal regular plan. Due to lower expense ratio, direct plan fetch higher NAV to the investor. This results in higher return to the investor.

Now let’s see, how both these scheme impact in a portfolio:  

Particulars

DIRECT PLAN

NORMAL PLAN

Scheme

HDFC TOP 200(G)

HDFC TOP 200(G)

Tenure

10 Year

10 Year

Net Return(Assumed)

11.50% p.a

10.80% p.a

SIP

Rs 5000 p.m

Rs 5000 p.m

Corpus on maturity

11,27,721

10,82,146

So we can see that, after 10 year direct plan grow to Rs 11, 27,721 which is 4% higher than the normal plan.

How to invest in Direct Mutual Fund plan?

New investors have to complete the KYC formalities by submitting photocopies of identity proof (PAN card), address proof & passport size photo.

  1. Existing Investors can approach the AMC directly
  2. After KYC procedure, investor can invest in any scheme of the different mutual funds.
  3. For investment, one should go to AMC directly & fill up mutual fund scheme application form.
  4. While filling the information, you must put tick mark on the ‘DIRECT PLAN’ option or you can write the word ‘DIRECT’ in the prescribed box.
  5. Don’t leave this column blank & ensure that there is no ARN code (Distributor’s code) mentioned in the form.
  6. Lastly submit your application form to the AMC service centre.
  7. Investors can also keep photocopy of completed application form with themselves for future reference.

What investors should do?

If investor is knowledgeable about choosing the right mutual fund scheme and can review it periodically, then such investor can go with Direct plan option. Otherwise s/he should invest in Direct Mutual Fund Schemes under the guidance of SEBI registered investment advisor or a Certified Financial Planner.

 

Last modified on Sunday, 11 August 2013 18:19

Prakash Praharaj

Shri Prakash Praharaj has a passion for excellence. He has been awarded two gold medals for securing top positions both in Graduation and Post Graduation in Commerce. He is an MBA with specialization in Finance and marketing. He has been awarded Diploma in Treasury, Investment and Risk Management besides CAIIB from the Indian Institute of Bankers. He is a Certified Financial PlannerCM from the Financial Planning standards Board, India (FPSB), affiliated to FPSB, Denver, USA and Certified Personal Financial Adviser from NISM. He is also a SEBI registered Investment Adviser vide Reg. no. INA 000000045 dated 2nd August 2013.His book "Your Every day guide to Personal Finance and Insurance" has been published by CNBC TV 18 in August 2015.

7 comments

  • Sujata Aniruddha Sapkal

    posted by Sujata Aniruddha Sapkal

    Thursday, 27 August 2015 12:24

    Direct Mutual fund schemes are good options to the well informed investor.....who wish to avoid the investing related costs to enhance the returns.

    Report
  • minecraft.net

    posted by minecraft.net

    Friday, 22 May 2015 09:37

    Genuinely no matter if someone doesn't understand afterward its
    up to other visitors that they will assist, so here it happens.

    Report
  • Story

    posted by Story

    Friday, 14 February 2014 06:22

    Wohh exactly what I was looking for, regards for posting.

    Report
  • Sandesh

    posted by Sandesh

    Wednesday, 03 July 2013 10:41

    Thanks for leading to this awareness, which must be known to every investors.
    AMC's should inform investors proactively this benefit.

    Report
  • Rahul

    posted by Rahul

    Sunday, 02 June 2013 05:21

    Are investing in mutual funds through Fundsindia, is like direct investing ?

    Report
  • Vineet

    posted by Vineet

    Sunday, 02 June 2013 05:15

    Good article..Appreciable..

    Report
  • Nehal

    posted by Nehal

    Sunday, 02 June 2013 05:07

    Thanks Prakash for this useful article on Direct Option in Mutual funds!

    Report

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