Mutual Fund Direct Plan, Advantage, Investment, Difference Between Direct and Regular Plan

Making smart investments is an excellent way for individuals to save money for their future while earning good returns that can maximize wealth. However, some high-return investments may also carry high risks, which is why investors must be cautious while choosing their investments.Mutual funds are a popular investment plan since they reduce some of the market risks by distributing the investment amongst many shares. However, there are different categories of mutual funds, and investors must understand them properly before choosing to invest in them. Mutual funds schemes can be either direct plan mutual funds or regular plan mutual funds. The method of investing is what differentiates them. This article is dedicated to understanding what direct plan mutual funds are.

When an investor chooses a mutual fund through which the funds are directly invested with the Asset Management Company without any distributor, broker, or bank, it is called a direct plan. Without a middleman, the expense ratio is reduced, thus increasing the returns. However, investing in a direct plan mutual fund can be complex and time-consuming. Since there are no intermediaries to strategies the investment plan, the investor will have to obtain adequate knowledge about the mutual fund and assess the associates with it. The scheme selected and execution of orders should be done by the investor in case of a direct plan.Therefore, only those who fully understand mutual funds and are clear with their investment objectives should invest in direct plan mutual funds. Investors should also consistently perform their own research and identify the funds that they want to invest in and track the performance of their investments. SEBI regulated all mutual funds and launched direct mutual funds in the year 2012.

Direct plan mutual funds and regular plan mutual funds are very different from each other. Depending on the kind of investment the investor wants to opt for and comparing the risks and rewards, the investor can choose to invest in any of the two types of mutual funds.A direct plan mutual fund does not have any bank or intermediary to manage the funds on behalf of the investors, whereas, in regular plans, banks or brokers act as intermediaries to manage the investments in the mutual fund. Investing in regular mutual funds can be as simple as assessing the mutual fund and transferring funds to it through the intermediary. At the same time, investing in direct mutual funds requires a lot of research, planning and knowledge about mutual funds.The expense ratio in the case of a direct plan mutual fund will be lower than the expense ratio of a regular plan mutual fund because the third-party management charges won’t be there. This will also increase the returns of the investor in the direct plan mutual funds. The NAV (Net Asset Value) is higher in the case of a direct plan mutual fund when compared to a regular plan mutual fund.However, the amount of time and effort required will also be more in a direct mutual fund.Market research and investment advice are not available in the case of a direct plan mutual fund. The investor must be knowledgeable about investing in mutual funds in case they opt for a direct plan mutual fund. However, investors that opt for a regular plan mutual fund will get investment advice, and the intermediary will perform adequate market research to maximize returns from the investment.

There are both online and offline options available to investors to invest in a direct plan mutual fund. A common element in either way is to ensure that the investor's KYC (know your customer) has been completed. This means that the PAN is linked to the mobile number, banks and Aadhaar card.Investors can invest in direct plan mutual funds through the online method in two ways. The first way is through the Asset Management and Mutual Fund Company, and the second way is through the Registrar & Transfer Agent (R&TA).

1. Open the official website of the chosen Asset Management Company
2. Follow the instructions to register with the specific the relevant Asset Management Company. This entails entering the details in an application form and opening an account with the company.
3. Once an account has been opened, assess the type of plans offered by the Asset Management Company and choose the plan most suited to the investor. This is a crucial step. Direct plan mutual funds can be searched by looking for the category of “direct” or checking for the word “direct” in the name of the mutual fund. Typically, an investor may find two types of direct plans, namely dividend and growth plans.
4. Next, the form of investment can be chosen. This means the investor has to choose if they want to opt for a lumpsum investment or Systematic Investment Plan (SIP), which refers to periodic regular payments.
5. The investor can opt for demat or non-demat investment. A demat account helps investors buy and redeem units of a mutual fund electronically. However, demat accounts are not mandatory for mutual funds.
6. If the investor is using the help of an advisor, the registered investment advisor (RIA) code should be entered.
7. The investor should now select the mode of payment and enter the bank account details.
8. Once all the details are properly verified to avoid errors, the investor can validate the form through a one-time password that should’ve been received on the registered email ID or phone number which was given at the time of creating the account.
9. Finally, the investor can complete the payment to make the investment.

1. Self-attested copy of the PAN card of the investor.
2. Self-attested copy of the address proof, which can be a copy of the passport, the most recent electricity or telephone bill, passbook or any other government-issued ID card bearing the address.
3. A filled-out common application form or a SIP form.
4. If the investor chooses to invest via SIP , a National Automated Clearing House Mandate or NACH Mandate needs to be filled out. This gives the Asset Management Company the requisite permissions to automatically deduct the investment amount from the bank account which has been linked. If the SIP is a monthly one, the deduction will happen automatically every month.
5. A cheque or demand draft named to the Asset Management Company to complete the payment and make the investment.

1. Investing through the website of an Asset Management Company:
2. Investing through the website of a Registrar & Transfer Agent (R&TA)1 Registrar & Transfer Agents (R&TA) like Karvvy and CAMS can be opted for to invest in direct plan mutual funds . Investments can also be made through SEBI-registered Investment Advisors. The process remains the same as opting for an Asset Management Company, which entails creating an account and then filling out the application form before completing the payment.
3. Investors can also choose to invest in direct plans through an offline method Here, the investor will have to physically submit the form to invest in a mutual fund. The investor will have to visit the nearest branch of the Asset Management Company. The KYC process must be completed, and the following documents must be submitted for in-person verification.
4. Once the documents are verified and payment has been completed, a folio number is allocated to the investor, and an account statement can be issued. In the case of going through a Registrar & Transfer Agent (R&TA) to invest in mutual funds using the offline method, the procedure remains the same. Investors must note that if the offline method is used for investment, other activities like redemption or changing the investment plan will also have to happen through the offline method. The investor will have to physically visit the branch and fill out forms for the same.

Also Read: Should I Include Mutual Fund In Retirement Planning?

1. Lower expense ratios: Every mutual fund charges certain expenses to the investors to compensate the fund managers for the analysis that helps them maximize the returns that the fund generates. Additionally, the intermediaries charge expenses for offering a wide range of portfolio management services to the investor in the case of a regular plan mutual fund. Therefore, since the expenses are less in a direct plan mutual fund, the expense ratio is lower. Though this difference could be slight initially, it will become significant for long-term investments. The expense ratio is charged on the amount invested every day.
2. Higher NAV (Net Asset Value): A mutual fund's Net Asset Value (NAV) is determined by dividing the total present value of all the assets in its portfolio by the number of outstanding units. NAV refers to the net asset value of outstanding units. A mutual fund's holdings can include a mix of cash instruments, debt securities like bonds and treasury bills, and equity shares of various firms. The NAV is the total present value after reducing the expenses. Therefore, the NAV of direct plan mutual funds would be more significant than that of regular plan mutual funds because investors in direct funds are not subject to brokerage fees.
3. High returns: Less expense ratio and higher NAV (Net Asset Value) results in higher returns for the investor. This can be understood through a simple example comparing the two types of mutual funds. Let’s assume an investor invests Rs. 10,000 every month in a SIP (Systematic Investment Plan). This investment is made for 10 years. If the investor opts for a regular plan mutual fund, the expense ratio will be 1% higher than the expense ratio of a direct plan mutual fund. The returns from the regular plan mutual fund will be Rs. 19,02,670 at the end of 10 years. Similarly, the difference of that 1% expense ratio can be seen here because the returns from a direct plan mutual fund will be Rs. 20,14,576, which is higher by Rs. 1,11,907 than a regular plan mutual fund.

Also Read: What are Mutual Funds? How it Works, Meaning, Benefits & Types