Direct plans of mutual fund schemes were launched in January 2013. The basic idea behind the concept was to allow well-informed investors to buy direct plans of a scheme directly from the mutual fund – via online or through authorised branches – and save on commissions.
Mutual fund direct plans are those where AMC / mutual fund Houses do not charge distributor expenses / trail fees / transaction charges. NAV of the direct plan would differ compared to a regular plan. However the investment objective and investment mix of the scheme portfolio would be same for direct or regular plans.
Who should invest in such direct plans of mutual fund schemes?
The benefits of lower cost structure and expense ratio are benefits the investor makes while investing in direct plans. This benefit of lower cost gets added to the investors portfolio as returns compounded annually over the tenure of the investment.
Cons of investing in Direct Plans
Wrong choice of funds due to lack of professional advice, here the investor may end up losing money due to wrong stock picking than save on commission. Therefore, the client should be willing to pay a fee for professional advice.
Wrong timing of the market and hence early or late exit
If you invest in Direct mutual fund plans through multiple fund house websites, tracking your MF portfolio can be a bit challenging task. In this scenario, you can create dummy portfolio on web portals like Economic times
How to invest in Direct plans ?
You can buy Direct plans online by visiting respective mutual fund house websites.
Today SEBI Registered Investment Advisors also offer Direct Plan in mutual funds to enable reduce costs of transaction for the investor. Online portals of NSE BSE offer ease and convenience of investing in Direct Plans.
Ask your financial advisor details of Direct plans and fee for portfolio recommendation and management.
How to switch from regular to direct mutual fund plans? (for existing MF investors)
Moving from Regular to Direct plans for investors is not that easy. A detailed analysis on costing, exit loads and tax implication needs to be calculated by your financial advisor and then a systematic switch from regular to direct will happen to reduce cost and tax implications.
Since the ‘switch’ is considered as normal redemption request (exit), you have to be aware of the tax implications. Based on whether the capital gains are short term or long-term, respective taxation rules are applicable.
Example of investing in direct plan over regular plan : If you invest Rs 1 Lac in a Regular plan which generates say 14% return in 15 years, the accumulation amount can be Rs 7.13 Lakh. The same Rs 1 Lac if you choose to invest in a Direct plan which generates say 15% return in 15 years, the accumulation amount can be Rs 8.13 Lakh. This extra 1 percent difference in the return can create a big impact in the final accumulated value over a long period.