How to Invest in Direct Plan of Mutual Funds in India ?

What is Direct Plan of Mutual Funds(MF) in India? How to invest in “Direct Plan of Mutual Funds“?

SEBI, the market regulator had come out with one more investor-friendly measure from 1^st January, 2013  ̶  Direct Plan of Mutual Funds. Earlier, SEBI was in the news when it abolished the Entry Load in Mutual Funds. Both these measures helped investors in the long-term wealth creation. Let us see, what is Direct Plan of Mutual Funds?

What is Direct Plan of Mutual Funds ?

Normally, you invest in Mutual Funds through any Mutual Fund Agent or a Broker. They will help you in selecting good funds, arrange for the documentation like Know Your Customer (KYC) etc. These agents are eligible for trail commission from your account every year. This is a small percentage of your accumulation. If you were investing directly without an Agent, the Fund Houses were saving on this Commission and the benefit was not passed on to the investors.

In 2013, SEBI directed all Fund Houses to launch a Direct Plan Option, so that investors who directly invest will be benefited by way of lower charges.  By saving on these charges, there can be a difference of around 0.5%-1% in the annual charges. This small reduction in charges can make a big difference in the long term. Since Mutual Fund investments are for long term, it will be better if you can invest in Direct Plan of Mutual Funds.

What is Expense Ratio of  Mutual Fund ?

Expense Ratio  is the amount of money spent to run a mutual fund. It is calculated as percentage of total assets of mutual funds.

Amount of money spent can be fund management charges, agent commission or marketing expenses to promote mutual funds.

The expense ratio is normally higher in equity mutual funds and less in debt mutual funds.

The maximum expense ratio a fund can charge is 2.5% in equity funds and 2.25% in debt funds.

Direct Plan Vs Regular Plan – Calculations

Suppose, you are investing Rs. 1 lakh Lumpsum in a particular Mutual Fund through an Agent. If the Fund is growing at a CAGR of 12%, you will get around Rs. 6,43,994 after 20 years, if the Annual Expense Ratio of the Fund is 2%. But, if you go for the Direct Plan Option of the same Fund, you will get around Rs. 7,12,993. Please check the chart below to see the difference. In simple words, you will get around 10% more in Direct Plan of Mutual Funds. The difference will be very high when you are investing through Mutual Fund SIPs for your long-term goals.

How to plan your Mutual Fund Investments?

For long-term goals, you can plan through Equity Mutual Funds. If you are planning to save for your daughter’s marriage after 20 years, Equity Mutual Fund is the ideal way. But, if you are saving for your retirement, which is just 5 years away, you can invest in Debt Mutual Funds. Equities will deliver good returns, if the time frame of investment is at least 7-10 years.

Depending on your goals, time duration, you may select Equity or Debt Mutual Funds and can invest through monthly SIPs. You may invest in a mix of 2-3 Equity Mutual Funds, 1-2 Debt Funds as per your risk profile. It is ideal to go for goal-based savings, after quantifying your financial goals. The allocation towards equity has to be reduced as you are nearing  the goals.

Can I go for the Direct Plan of Mutual Funds?

If you are capable of selecting the best performing funds and are capable of reviewing their performance, you can opt for Direct Plan in Mutual Funds. But you may have to allot quality time for this job. The other option will be to invest as per the recommendation of Fee Only Financial Planner or an Investment Adviser. But ensure that the Adviser is independent and is not selling any product. If you approach an Adviser who is also selling the Funds, he may recommend the Funds, where he is getting better commission.

Periodical review of the Fund performance is very important in Mutual Fund investing. But if you have an independent Financial Planner, he will do this on his annual review.

Direct Mutual Fund Benefits

If you are investing Rs. 5,000 per month in good Mutual Fund SIPs, you can expect to get around Rs. 49 Lakhs after 20 years, assuming a 12% return.  Your Agent will be getting around Rs. 1,70,000 in 20 years as trail commission on this. This translates into Rs. 8,500 per year for 20 years. If you opt for Direct Plan in Mutual Funds, this can be saved. If you are smart, you can engage an Independent Financial Planner by paying around Rs. 5,000 per year. He will guide you on all financial products and you can reach your goals easily.

How to invest in Direct Plan of Mutual Funds for better returns

From the above calculations, it is clear that opting for investing in Direct Plan of Mutual Funds is the ideal way. But, in the absence of an Agent, you may have to do a bit of paper work and the Form filling all by yourself. But, it is a one-time exercise which is really worth. You need to put a tick mark against Direct Plan while filling up the form and your investments will be in the Direct plan of mutual funds.

How to invest in Direct Plan of Mutual Funds without visiting CAMS or Karvy?

Can I invest in direct plan of mutual funds,in India, without visiting CAMS or Karvy? The answer is

• Yes, if you are an existing investor.
• No, if you are a new investor.

After the introduction of Direct Plans in Mutual Funds from 1^st January, 2013, lots of investors are trying many options to convert their existing investments to Direct Plans. In fact, many new investors are keen to start investing in Direct Plans, but they are demotivated with the process involved in this.

Disadvantages of Direct Mutual Funds

As in case of Direct Plans, there is no Agent involved. So, you will not get the support of anybody to fill in the Application Form. We are all accustomed to sign on the bottom line, while the Agent does the Form filling job for us. In this case, you have to fill up the Form all by yourself. Moreover, you have to visit the offices of CAMS or Karvy as the case may be. All these are difficult and so, many investors are still not opting for the Direct Plan.

In the absence of an Agent, how will you identify better Funds in the market? Also,If you cannot do the research and shortlist good Funds, go for a professional help. Though A fee only Financial Planner can help you in identifying better Funds for you. He will charge a fee but you will stand to gain a huge amount in the long-term compared to investing in Mutual Funds through Agents. If you invest Rs. 10,000 per month for 20 years, you can get around Rs. 99 Lakhs in Direct Plans assuming a 12% return. But if the investment is through an Agent, then you will get around Rs. 91 Lakhs only. In the long run, this can make a huge difference in your savings.

Disadvantages of Direct Mutual Funds – The Hindu Article

How to Switch from Regular to Direct Plan – Existing Investor

If you are already having some investment in a particular Fund House, then switching from Regular to Direct Plan is easy. You need not visit CAMS or Karvy for this.  Suppose, you have invested in HDFC Top 200 Fund Regular Plan through any Agent/Broker/Funds India like portals. In this case, you will have a Folio Number with HDFC Mutual Fund.  You can visit the website of HDFC Mutual Fund and look for the online investment option. There are many options listed for investors with or without PIN.

You can invest in any Fund of HDFC Mutual Fund after creating a PIN for you. While most Fund Houses will allow you to create the PIN online, some Fund Houses will ask you to download the PIN application and send to them. You will get the PIN from them within a few days. After that, you can do almost all transactions like buying, selling, switching etc online. You can even start an SIP online and there is no need to fill up any Application Form. It is completely paperless.

Like this, you can invest in Direct Plan of Mutual Funds without visiting any offices of the Fund House or CAMS. But your existing investment will continue to be in the regular plan. You can switch the accumulated units after 1 year from the date of investment to the Direct Plan without any tax implication or exit load. The entire investments will reach the Direct Plan without visiting CAMS office.

Also,You have to do this for each of your Folios to invest in Direct Plans of that Fund House.

How to invest in Direct Plan – New Investors

The first stage in Mutual Fund investing is to do the KYC (Know Your Client). Then you are expected to submit your Identity Proof and Address Proof as part of it. This can be done at any of the offices of the Fund House or offices of CAMS or Karvy. So,Is there any way to do this without visiting CAMS?

Yes, you can be a bit diplomatic. Just walk into your bank and meet the sales team there. There are people who are selling Mutual Funds.Just invest a token amount of Rs. 5,000 in any of the selected Fund under the regular plan. Also the bank staff will fill up the Application Form and do the KYC for you. Within a few days, you will get the Folio Number for your investments.

After getting the Folio Number, you can follow the steps mentioned above for the existing investors and do further investments in Direct Plans.  After 1 year, you can switch the initial investment of Rs. 5,000 also into the Direct Plan. At this stage, you can invest in all other fund houses because KYC is common across all fund houses.

Direct Plan investing made easy – MF Utility

You have another facility by AMFI to invest in Direct Plans using a single platform. This is called MF utility  which allows you to invest in all funds using a single login credentials. All you need is to open a Common account Number with MF Utility.

Direct Mutual Fund Platforms

Here is a list of Direct Mutual Mutual Fund Platforms

1. AMC Portal
2. CAMS
3. Mutual Fund Utility
4. Kuvera
5. Invezta
6. Zerodha

Best Direct Mutual Funds

So, Is there any list of best direct mutual funds? The answers is no. Also,the mutual fund which may work for you may not be best for others.So It is better to go for goal based investing rather than looking for best direct mutual funds.

Best Direct ELSS

Here is the list of Direct ELSS funds for 2018. Also,You can decided whether it suits you goal based investing.

Difference between Direct and Growth Mutual Funds

This is not an apple to apple comparison.Direct is a way to invest in mutual funds. Growth option is available in both Direct and Regular plan of Mutual Funds.

In conclusion,Now you know,how to invest in Direct Plan of Mutual Funds without visiting CAMS or Karvy?