Direct mutual fund plan
Direct mutual fund plan
What are the direct plans in mutual funds
and what are the benefits from them. Nowadays investors have started
investing through direct plans of mutual funds but investors still have
many doubts and questions about the direct plans of these schemes.
Whether to invest in mutual fund schemes through them?
What are direct plans?
Although Asset Management Companies (AMC) had allowed direct
investment in mutual fund schemes before 2011, there was no separate
scheme for these investments. These investments were made in the
distributor scheme itself and were tracked with the NAV out of the
distributor scheme. Hence the investor was bound to buy the mutual fund
on the basis of the NAV of the distributor schemes. With the
introduction of the Direct Plan from January 1, 2013, things changed.
Direct Plan in Mutual Fund
Direct plans or direct plans are those where AMC / mutual fund houses
do not charge distributor expenses / trail charges / transaction fees.
The direct plan will have a higher NAV than the regular plan. However,
the investment objective and investment mix of a plan portfolio is the
same for direct or regular plans. Simply put, there is no middleman in
these schemes and the commission paid to the middlemen gets to the
investor.
Features of Direct Plan in Mutual Fund
Investors can invest directly in these schemes without involving
distributors or mutual fund brokers. They are required to follow the
procedure for investing in mutual fund schemes on the AMC website.
Expense ratio low
For such schemes, the mutual fund does not pay any distribution fees
or trail charges paid to the broker. Due to this, the expense ratio in
direct plan will be lower than regular plans and investors will get
higher returns than regular plans. This return can be as high as 0.5% to
1.5% per year compared to regular plans.
No distribution charge in Direct Plan
There will be no distribution charge for lump sum investment or SIP
investment made through these schemes as the transaction is done
directly with AMC. Some mutual funds are intermediaries that do not
charge transaction fees because they rely on trail fees.
Each scheme has a separate NAV (net asset value) for direct plans. D is written at the end of the name of such schemes.
Who should invest in a direct plan?
This plan is good for investors who want to deal directly with AMC in
mutual fund schemes without an intermediary / broker. These are good
for investors who want to increase their returns in a way that reduces
the expense ratio. Small savings in investment can also prove to be very
beneficial in the long run.
Do your study
Investors in these direct plans should do their own analysis and
choose the top mutual fund schemes for investment. Investors should
study mutual fund websites to know about good mutual fund schemes.
Document Process Care
An investor investing in a direct plan has to take care of the
application and documentation process in the mutual fund itself. This
includes application, tracking, portfolio, adding or changing the
nominee’s name, change of address, KYC etc. Since everything is now
online, one can start investing in Direct Plan plans.
Direct plans are best for those who want to increase mutual fund
returns by investing directly from AMC and can submit documents on their
own. Although the process may seem a bit complicated in the initial
stages, it seems easier when investing later.
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