Discounts are the flavor of the festive season. From shopping malls to your favorite e-commerce websites such as Flipkart, Myntra and Amazon, everyone is offering heavy discounts. You try to maximize your savings too. You look for the best deals, compare product prices across various online portals and search for discount coupons and cash back offers.
However, amid this heavy duty work, we sometimes miss out on some of the simplest and easiest deals available. These deals are right in front of us but we don’t take them.
Investment in Direct plans of mutual fund schemes is one such deal. You can save a lot of money over long term by investing in direct plan of mutual fund schemes. But not many investors are aware about direct plans of MF schemes.
What are Direct Plans of Mutual Fund Schemes?
In short, there are two ways of investing in mutual funds. One through an intermediary (regular plan) and one without involving intermediary (direct plan). Expectedly, since there is no intermediary involved in direct plans, there is no commission to be paid to the intermediary and that reflects in higher returns for direct plans. For more on direct plans and how these plans offer better returns, go through the following post.
Isn’t that the definition of a discount? You get the same product at a lower price. Under direct plan of MF scheme, you invest in the same fund with the exactly same portfolio managed by the same manager (as in regular plan of a MF scheme). It is just that the return under the direct plan is higher than the regular plan. Since mutual funds are meant for long term investments, the difference in absolute return can run into lacs of rupees (because of compounding). Which online portal gives you such discount?
Best Money Saving Tip for 2016
Switching from regular plan to direct plan of MF schemes could be the best money saving tip for 2016 for many investors.
For new investors, they can begin investing in direct plans of mutual fund schemes. I am sure the cost saving over the long term will be far greater than the discounts you will get on e-commerce websites.
How to invest in Direct plans of Mutual Fund Schemes?
I have discussed in many posts how investments in direct plans are beneficial to investors. In this post, I will discuss various ways through which you can invest in direct plans of Mutual Funds schemes.
You can invest in direct plans through both physical (offline) and online modes. Let’s find out how.
How to invest in Direct Plans of Mutual Funds in Offline (Physical) Mode?
Not everyone is comfortable doing financial transactions online. If you feel the same, you can invest in direct plans in the following manner:
- Visit the nearest Mutual Fund Branch (AMC office): You can fill in the form for purchase starting/stopping a SIP or redemptions. The only problem with this approach is that you will have to visit the branch for very transaction.
Moreover, MF branch will allow transactions only in its schemes. For instance, you cannot go to HDFC MF branch to invest in ICICI Prudential Mutual Fund scheme. Hence, for every new AMC you want to invest with, you will have to visit a new branch.
- Visit the nearest office of R&T agencies such as CAMS and Karvy: CAMS and Karvy act as Registrar and Transfer agents for many mutual fund houses (AMCs). In a way, AMCs have outsourced their paperwork to these entities. You can even visit CAMS and Karvy branches in your city to invest in direct plans of MF schemes. CAMS and Karvy do not act as R&T agents for all the AMCs. You can only invest in funds serviced by them at their branches. Visit these links for the list of AMCs (MF houses) serviced by CAMS and Karvy.
- Visit MF Utility Point of Service: At MF Utility POS, you can invest in MF schemes from 25 participating AMCs (mutual fund houses). To start with, you will have to Common Account Number (CAN) registration from and submit at any point of service of MF Utility. You can go to the following link and follow the set of instructions. Once you have CAN, you are good to go. You can visit any MF Utility POS and fill transaction forms.
Typically, CAMS and Karvy act as Point of Service (POS) for MF Utility. You can visit these branches to invest through MF Utility. For complete list of points of service for MF Utility, you can visit this link. For more on MF Utility, do through the following post.
Must Read: MF Utility is a win-win for investors
If you are investing in offline mode (physical), remember to write Direct in front of the scheme name e.g. HDFC Balanced Fund-Direct Plan. This will avoid any kind of confusion.
How to invest in Direct Plans of Mutual Funds in Online Mode
- From Websites of respective AMCs: If you are KYC compliant, you can start investing right away. You need to have your net banking details ready. Visit the MF website and follow the instructions.
You would be KYC compliant if you are an existing investor. Even if you are not KYC compliant, you can get the KYC done at CAMS or Karvy branches or at nearest AMC branches. For new investors, some AMCs have even started offering e-KYC facility. Do note once you are KYC compliant, you don’t have to repeat the exercise with every AMC. To check whether you are KYC compliant, go to this link.
- Online investment in direct plans through MF Utility: MF Utility has started offering online investments in direct plans to retail investors from January 1, 2016. This is a HUGE development. From MF Utility, you can invest or transact in multiple MF schemes from a single interface. If you are already using MF Utility in offline mode or have Common Account Number (CAN), you can request MF Utility for online access. As of now, MF Utility is available free of cost to investors.
I had not yet opened account with MF Utility since the online investments in direct plans were not yet permitted. However, with online investment in direct plans now a reality, I plan open account with MF Utility (apply for CAN) in a few weeks.
- Websites of CAMS and Karvy: You can also go to websites of CAMS and Karvy, register with them and invest in direct plans of MF schemes serviced by them. So, you can go to CAMS website (or mobile App) or Karvy website. The limitation is that you can only invest in funds serviced by respective R&T agencies. Visit these links for the list of AMCs (MF houses) serviced by CAMS and Karvy.
- Several online portals are coming up that promise to allow investment in direct plans of MF schemes. Their business model and the level of fees charged are not yet clear. Since such portals have not yet been launched and I have no feedback about those portals, I am withholding names of those portals.
If you are investing in direct plans online, select Direct plan option. While selecting fund, select MF Scheme Name- Direct Plan e.g. HDFC Balanced Fund- Direct Plan.
How NOT to invest in Direct plans of Mutual Funds?
You will end up investing in regular plans of mutual fund schemes if you purchase mutual funds through:
- Through local Distributors: Local distributors acts as intermediary and get commission from the mutual fund houses. You will get invested in regular plan if you go through them.
- Through Banks: This is a very common misconception. If you think you will get invested in direct plan of a HDFC MF scheme if you invest from a HDFC bank branch, you are WRONG. HDFC Bank merely acts as intermediary (distributor) for HDFC AMC and gets commission just like a distributor does. Hence, if you have been investing in mutual fund schemes through bank branches, you need to rethink.
- Through online portals such as FundsIndia, Scripbox or ICICIDirect: Again, these portals acts as intermediary and are compensated my AMCs (mutual fund houses). If you are investing through these portals, you will end up investing in regular plans of MF schemes.
Please understand the local distributors and specific online portals are not evil. They offer you convenience and advice (in some cases) and deserve to be compensated for the same. With banks, I have certain reservations. In my opinion, banks are the worst places to seek financial advice.
In my opinion, the convenience you get by investing in regular plans is not worth the price you are paying. Moreover, the process of investing in direct plans of Mutual Fund Schemes is quite simple.
With MF Utility permitting online transactions in direct plans, you can make investment in multiple MFs from a single interface.
You don’t have too many excuses left for not investing in direct plans of mutual fund schemes.
A Word of Caution: Though direct plans of MF schemes are low cost and offer better returns than regular plans, it does not mean mutual fund selection and investment discipline is not important.
Direct plans are the best suited to Do-it-yourself investors. Such investors can research and select based on their goals and investment horizon. This way, they can save on intermediary cost by investing in direct plans of mutual funds.
If you are not comfortable doing MF research on your own, you might be better off going through a local distributor for regular plans. He/she will help you select funds and make necessary adjustments to your portfolio when required.
Alternatively, you can seek assistance from a SEBI registered Investment Adviser. Such advisers can offer you investment advice for a fee and you can subsequently invest in direct plans of mutual fund schemes. The fee you pay to these advisers will be easily taken care of through cost savings from direct plans.
Disclosure: I am a SEBI Registered Investment Adviser. Hence, I have vested interest in recommending you services of a SEBI Registered Investment Adviser.
Image Credit: Kurt Bauschardt, 2012. The original image and information about usage rights can be downloaded from Flickr.