What Are Direct Mutual Funds? Benefits and Key Features

As the stock market grew, people saw better returns in their money investments. That’s when people started investing in mutual funds more. The rise of online platforms made it even easier for people to invest, leading to widespread popularity of mutual funds in India. There are two types of mutual funds: Regular Mutual Funds and Direct Mutual Funds.
Regular Mutual Funds are purchased through intermediaries like brokers or financial advisors, who charge a commission, which affects the returns you receive. On the other hand, Direct Mutual Funds can be bought directly from the Asset Management Company (AMC), without any middleman, meaning there are no commission fees, and you get the full returns on your investment.
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ToggleWhat Are Direct Mutual Funds?
Direct mutual funds are simply funds where you invest straight with the Asset Management Company (AMC), without going through brokers or distributors. Since there are no middlemen involved, these funds usually have lower fees, meaning you get to keep more of your returns. It’s a great option if you want to cut out extra costs and maximize your investment.
How Do Direct Mutual Funds Work?
Direct mutual funds let you invest straight into a mutual fund scheme through the AMC’s website or platform, skipping brokers or distributors. This makes the whole process cheaper. The fund manager then invests the money in different securities according to the scheme’s goals. You’ll get the same returns as regular mutual funds, but with the added benefit of lower costs.
Also Read: Direct vs Regular Mutual Funds: Which is Better for You?
Key Features of Direct Mutual Funds
Direct Mutual Funds come with several features which make them a popular option for investors. One can enjoy lower costs and maximise the returns as these funds offer the same investment opportunities as regular mutual funds do, but with less fee. Here’s few key features of Direct Mutual Funds:
- No Intermediary Fee: There are no commission charges or distribution fees involved, which benefits the investor.
- Lower Expense Ratio: Direct mutual funds have no intermediary fees, which reduces the overall cost.
- Transparency: Investors have direct access to the fund’s performance and can track their investments easily.
- Higher Returns: Due to lower fees, the returns on direct mutual funds are generally higher than those in regular funds.
- Flexibility: Direct mutual funds offer complete control to investors over their investments.
Benefits of Investing in Direct Mutual Funds
If you are looking to make the most of your money, investing in direct mutual funds can be a smart move. Here, you enjoy lower costs and keep more of your returns. Let’s see how you can benefit from choosing direct mutual funds:
- Cost- Effective: The absence of intermediary fees and the low expense ratio makes this a popular option for investors to invest.
- Potentially Higher Returns: As there are no broker commissions, returns can be higher in the long run.
- Flexibility: Investors manage their own investments without relying on a third party which gives you control and is flexible.
- Long-Term Growth: Investors have a better chance of compounding their wealth over time with lower costs.
- Transparency and Access: Direct mutual funds offer transparent information about the fund’s performance.
How to Invest in Direct Mutual Funds Online
Investing in direct mutual funds is easier than you might think! All you need to do is go straight to the official website of AMC/banks/apps and invest through their website or app—no brokers involved. It’s a simple, cost-effective way to get started with mutual fund investing. Let’s walk through the steps to invest in direct mutual funds!
- Visit official Website/App: Go to the official website of any Asset Management Company (AMC) or investment apps to get started.
- Open an Account: Create an account on the AMC’s website or app.
- Complete KYC: Make sure your PAN is linked to your KYC (Know Your Customer) details, as it’s required for mutual fund investments.
- Choose the Scheme: Select the mutual fund scheme you want to invest in. Don’t forget to choose the “Direct” option under “Plan Type.”
- Set Investment Details: You can invest through SIPs (Systematic Investment Plan) or in New Fund Offers (NFOs). You can also use a demat account to manage your investments.
- Add Payment Details: Confirm your bank details (name, account number, IFSC code) and choose your payment method.
- Verify: You’ll receive an OTP on your email and phone. Verify it to continue.
Make the Payment: Once verified, complete your payment, and you’ll get a confirmation on your email.
And that’s it! You’re now all set to invest in direct mutual funds.
Also Read: Tips to Maximise Your Mutual Fund Investments
Documents Required for Investment
These are few documents one must have to start investment online:
- Aadhar card for identity verification
- PAN card for tax purposes
- Bank account details and passport size photo
- Proof of address (e.g., utility bills)
Platforms for Investing in Direct Mutual Funds
- AMC Websites: Most Asset Management Companies provide a direct investment option through their official websites.
- Investment Apps: Apps like Groww, Zerodha, and offer a platform for investing directly in mutual funds.
- Banks: Many banks also offer the option to invest directly in mutual funds via their online portals.
Few of the common misconceptions are listed below:
- “Direct Funds are only for Experts”: Many believe that direct mutual funds are only for experienced investors, but these funds can be a good choice for anyone willing to do some research.
- “Direct Mutual Funds Guarantee Higher Returns”: While they generally offer higher returns, returns depend on market performance and are not guaranteed.
- “Direct Investment is Complicated”: Investing directly is easy, and several platforms provide simple tools for beginners.
Conclusion
Direct mutual funds are a great option for investors looking to save on fees and manage their investments without intermediaries. By understanding their key features and benefits, you can make informed decisions and potentially enjoy higher returns. However, always evaluate your financial goals and risk appetite before investing.
Frequently Asked Questions
Are Direct Mutual Funds Suitable For New Investors?
Yes, direct mutual funds can be suitable for new investors, especially if they are willing to invest time in understanding the funds and research options. Beginners should ensure they have a clear investment plan.
How Can I Switch From A Regular Mutual Fund To A Direct Mutual Fund?
To switch, you can redeem your units from the regular mutual fund and invest in the same scheme through a direct plan by visiting the AMC’s website or using an online platform.
Do Direct Mutual Funds Offer Higher Returns Than Regular Funds?
Direct mutual funds generally offer higher returns than regular funds because of their lower expense ratios. However, returns depend on market conditions and the performance of the fund.
What Are The Risks Associated With Investing In Direct Mutual Funds?
The risks include market volatility, incorrect fund selection, and lack of professional guidance. Investors should assess their risk tolerance before investing.
Is There A Minimum Investment Amount For Direct Mutual Funds?
Most direct mutual funds have a minimum investment amount, which can be as low as ₹500 for SIPs, though it can vary depending on the fund.
How Do I Track The Performance Of My Direct Mutual Fund Investments?
You can track the performance of your investments through the AMC’s website or investment platforms, which offer regular updates and performance metrics.
Are There Any Tax Implications When Investing In Direct Mutual Funds?
Yes, direct mutual funds are subject to capital gains tax.
What Should I Consider Before Investing In Direct Mutual Funds?
Before investing, consider your investment goals, risk tolerance, the fund’s past performance, and the expense ratio. It is also important to understand the fund’s portfolio and strategy.
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