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Mutual Fund Direct Plan–You Should Invest Or Not?

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SEBI the regulator of securities market in India has directed fund houses to offer mutual fund direct plan to the investors apart from the regular plan. Which simply means, MF houses should allow investors to directly invest in Mutual fund scheme without any broker or agent. Elimination of agents will reduce the middleman commission which in turn reduce the expense ratio of the scheme. Hence this type of scheme will offer better returns than the regular scheme i.e the scheme offered by the distributors.

Direct plan is an option given to the investors to purchase units of mutual fund directly from the AMC and not through a distributor. W.e.f. January 1, 2013 now AMCs will offer direct plans in mutual funds to the investors. So now as an investor If you choose to invest directly in mutual fund scheme then you will not end up paying the commission expenses. Since AMCs will not have to pay any commissions or expenses to the middleman for such schemes, NAVs and returns will be higher.

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All the investors (whether existing or new) are allowed to invest under Mutual Fund Direct Plan. As an investor you can invest in different mutual fund schemes which falls under direct plan :-

  • All open-ended schemes of the fund except Exchange Traded Funds (ETFs) & Plans discontinued for further subscriptions
  • New Fund Offer (NFO) of Fixed Maturity Plans under close-ended schemes of the Fund launched on or after the Effective Date; and
  • Interval Schemes (commencing from the first day of the Specified Transaction Period immediately succeeding the Effective Date).

Who Should Not Invest In Direct Mutual Fund Scheme?

Considering the scenario where you as an investor have to choose 3 to 5 mutual funds out of 1800 funds require some knowledge about mutual fund products. As choosing the right product which will fit into your portfolio is a task that a lay investor may not be able to do properly. Apart from choosing the mutual fund product for investment, an investor have to make all the documentation like filling the form, sending the same to the AMC, tracking your sale and purchase, maintaining all documents etc.

Features

  • Investors can invest in this scheme but directly approaching the Mutual fund company.
  • Direct plan mutual funds have separate NAV than regular scheme NAV. [The direct plan NAV will be only for the investors who directly invest with the fund house without using the services of distributors and brokers hence no brokerage or distribution charges].
  • Lower Charges : The cost of holding funds in direct plan mutual fund will be cheaper than regular plan.
  • Investors in direct plan will get relatively higher returns compared to the regular plan. [The fund management charges of direct plan are lower than the regular plan hence will offer higher returns in the hands of investors.]
  • Investors who have time and average knowledge can choose to invest in direct plan and earn higher returns.
  • Switching from regular plan to direct plan will also attract capital gain tax and exit load.
  • Switching can dissolve the running SIP of the investor.
  • Existing investments can also be converted to direct plans by simply submitting a switch request to the AMC.
  • All the applications without distributor ARN code will be treated as direct plan.

Conclusion

So concluding the above discussion it is difficult for a lay investor to invest directly as it requires market research, time and management of things which is little difficult for a first time investor to manage properly. Whereas a savvy investors can take advantage of direct plans.

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