How You Can Get More Returns With Direct Mutual Funds

Investing in mutual funds always gives more returns compared to traditional investment options. We've evidences where investors earned more than 60% returns from some of the top performing mutual funds. But what if I say the returns can further increase if you would have invested in direct funds instead of the regular one ? Yes ! it can be possible with the direct mutual fund scheme available with all mutual fund houses. Lets learn about what are Direct Mutual Funds

What are Direct Mutual Fund ?

Direct mutual fund is special category defined by AMC which allows direct investment in mutual funds. You need not to approach any distributor or agent in order to invest in these types of mutual funds. You can invest in the fund directly. All direct plans are identified by prefix – direct to the name of mutual funds.

Why Direct Mutual Funds for Investment ?

Traditionally mutual funds have been sold through brokers and intermediaries. The commission that they earn by selling mutual funds is added to the expense ratio of the fund. So expense ratio largely have had 2 components.

  1.  Management expense which is the expense borne by the fund themselves to run the funds. For example fund manage fees
  2. Commission given to the distributor to distribute these funds.
Those are termed as Regular plans. Now, with RBI mandate each Regular plan has to have an equivalent Direct plan. Direct plan is supposed to be sold by the AMC directly to the customer with no brokers coming in between. Hence there are no distributor commission in a Direct plan. So the Expense ratio of a Direct plan is guaranteed to be lesser than that of a Regular plan.

How you can invest in Direct Mutual Funds ?

There are many ways by which you can invest in the direct mutual funds. We've listed some of the ways to invest
  1. A fund house website
  2. Other low cost direct mutual fund platforms such as Zerodha Coin

Investment in Direct Mutual Funds through Fund House Website

Steps to purchase fund online via fund house website is given below.

  1. Register to fund house website. You need to do this for every website individually.
  2. Select old portfolio or register for new portfolio.
  3. Select the scheme, amount and SIP details.
  4. Transfer funds online via Netbanking or provide payment details.
  5. Once fund transfer is done fund will be purchased and transaction details will be emailed to you.

It is a very tedious exercise to purchase fund from multiple website as it required dedicated effort and time. A better method to purchase direct fund is via low cost direct mutual fund platforms.

Investment in Direct Mutual Funds through Zerodha Coin

  1. Visit Zerodha Coin and open new Zerodha account.
  2. Login to your account with details provided by Zerodha
  3. Select the scheme, amount and SIP details
  4. Select payment method and purchase mutual funds online.
Zerodha provides the free investment in Direct mutual fund up to INR 25000/- if you're willing to invest more it will charge a nominal fees of INR 50/- per month. The fees charged by Zerodha is very less compared to the 4-7% charged by third party. 

There are lot of other such portal available, please let us know who is your favorite investment portal to invest in direct mutual fund and why in comments below.

Is Direct Mutual Funds scheme for you ?

From above explanation, definitely direct plan is better, as ultimately it impacts on the ROI (return on investment), which becomes higher due to less cost annually.However, the comparison is not that simple. In a way, the difference is like a fee you pay to your doctor, lawyer or CA for their professional advice. Where you also have an option of going on your own thru self-use websites, with zero or fraction of the cost. Whether you should pay that fee or not depends on the investor’s own capability and the quality of service you get such as investment recommendations, investment services such as periodic review, tracking of portfolio. The direct mutual funds are for those who are diligent investor with deep knowledge, meaning that you can pick and track your own mutual funds, then the direct plan is better.


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