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All important things about ‘Direct Plans of Mutual Fund Investment’!


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Mutual Fund-investment-Direct Plans of Mutual Fund

Lets understand All important things about ‘Direct Plans of Mutual Fund Investment’!

This month marks 10 years since inception of direct mutual funds!

Today, many mutual fund investors opt for Mutual Fund Investment, many are still not aware about it & many are still contemplating whether to invest in direct mutual funds.

For all those who are still unaware about it or are contemplating to invest, here I am giving some simple insights about direct plans of mutual funds.

What are direct plans of mutual funds?

In the year 2013, SEBI, the market regulator, initiated the concept of direct plans to facilitate mutual fund investors to invest directly from mutual fund houses.

Such plans enable mutual fund investors to invest in mutual fund schemes which operate same as regular plans of mutual funds (i.e. mutual fund investments which are invested through distributor) except cost of commission which is given to distributors.

Here, as the cost is lesser with direct plans, it automatically reflects in scheme’s net asset value i.e. NAV.

When the cost is lesser by some proportion this way, it in turn reflects in investor returns too.

Who can invest in direct mutual funds?

All investors who are eligible to invest in mutual funds can invest in direct mutual funds.

How to invest?

At present, fintech platforms have played major role in getting easy access to direct mutual fund investing.

Investors can invest in these plans by using relevant apps, websites in online mode.

For offline mode, investor can connect with chosen mutual fund house & initiate the application process.

Investors get access to their investments to check, review & track.

A review of the progress made by direct plans so far:

In the last 10 years, direct plans of mutual funds have come a long way.

Increasing awareness, investor education programs by AMCs, SEBI initiatives to keep maximum transparency in the process, fintech platforms & ease of transactions, etc have added to the progress.

In November 2022, share of direct plans is almost 45% to that of regular plans as per the study.

As per the reports, Quantum mutual fund house launched first ever ‘direct plan’ of mutual fund in the year 2006. This was before SEBI initiated the concept. Back then it was not named as a ‘direct plan’ but AMC launched it s the one, without distributors commissions.

Today, industry has grown multifold & direct plans are integral.

Things to keep in mind while investing in direct plans:

Even though the direct plans are gaining popularity, still majority of the population lacks awareness about mutual fund investing, direct plans.

Though online mode is quite easy to invest in mutual funds direct plans, people from villages & remote areas are away from internet access & knowledge about it.

On the other hand, those who invest in direct plans, follow online /offline mode as per convenience.

Such investors follow check points like scheme AUM, fund manager record, past returns, peer comparison etc. while investing.

But is it sufficient?

Well, not always!

Investor must posses some traits, discipline & awareness as follows while investing in direct plans of mutual funds-

  1. Basic & detail knowledge of the scheme to invest:

Investor, when invests in direct plan often chooses ‘DIY mode. Means ‘do it yourself’ mode!

Here, he/she invests sans ‘financial adviser’s advice or suggestion’.

When there is no expert opinion to back the investing decision, investor must be aware of the basics of the scheme while investing.

Investor should read & understand all scheme related documents carefully before investing.

  • Discipline:

Investors of direct plans of mutual funds must follow ‘discipline while investing’.

If he/she starts any ‘systematic investment plan’ then, he/she should continue with it, in all market conditions.

  • Better knowledge of basics of investing:

For any mutual fund investment to give desired returns to investor, investor should invest in mutual funds as per his/her own basic parameters of investing.

They are-

Future goals:

Investor should invest as per set future goals. They can be short term, long term or medium-term goals. Every investor can have different goals as per priorities. Goals define ‘why’ of the investment.

Risk appetite:

Risk appetite is knowing ‘how much risk one can bear on own money invested’. Since mutual funds are market linked, they are subject to market risks. So, one should know risk appetite of own. This helps investor to choose category of the scheme to invest.

Investment tenure:

Investment tenure is the time period for investment to hold. Goals help us to define investment tenure.

These basics cover major aspects of choosing right & suitable mutual fund scheme to invest.

  • Review:

Investors of direct plans should review their investments from time to time. Regular review ensures health of the investment, necessity to make any changes in the portfolio, report progress of the portfolio.

Having said that, financial advisers who work in ‘Fiduciary’ capacity & regulated by SEBI as SEBI Registered Investment Advisers, advise to invest only via ‘Direct plans’ of mutual funds.

In the process of comprehensive financial planning, they choose right & suitable fund for investor, review & make suitable changes in the portfolio from time to time.

It is not a question of earning 1%- 2% more than regular plans investments, but to choose right, suitable fund, be disciplined & stay tuned to your future goals & progress of the portfolio.

So, if you have any bias or confusion, then please opt to hire services of SEBI RIA.

Happy Investing!

Contact ARTHA FinPlan for more details. Stay updated on facebook.

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