How to invest in Direct Mutual Funds?

Direct Funds help you save on commissions that would otherwise go to middlemen, boosting your returns. If you're wondering how to invest in Direct Mutual Funds in India, this blog is for you.
EXPLORE FUNDS
How to invest in Direct Mutual Funds?
EXPLORE FUNDS
4 mins read
23-October-2024

Mutual funds, recognised for their potential to enhance wealth, stand as a highly favoured investment choice. These funds are managed by experts, encompassing a diverse mix of stocks, bonds, and various securities. Broadly, mutual funds are categorised into two types: regular and direct. Regular mutual funds are accessible through intermediaries like brokers and financial advisors. In contrast, direct mutual funds are offered straight to investors, bypassing intermediaries altogether.

Direct mutual funds are a good choice for investors who want to save on commission fees and earn potential higher returns. Since there are no intermediaries involved, the commission that would have been paid to them is saved and added to the investor’s returns.

In this guide, we break down the step-by-step process of investing in direct mutual funds. We aim to offer clarity and simplicity to help you make informed decisions. Whether you're new to investing or looking to optimize your portfolio, this comprehensive walkthrough will empower you to navigate the world of direct mutual funds with confidence.

How to invest in direct mutual funds?

Investing in direct mutual funds can be done in two modes: Online and Offline. Before you begin, the first step is to choose the mutual fund you want to invest in. This involves knowing the mutual fund type and the Asset Management Company (AMC) that the fund belongs to. It is also essential to keep in mind the amount you want to invest in the scheme based on your goals and if you wish to go with a Systematic Investment Plan or make lumpsum deposits. This stage, you are presented with two alternatives – Dividend and Growth.

Investment through the AMC website

Investing in direct mutual funds can be a straightforward process, especially if you prefer handling transactions online. As a first-time investor, you'll need to complete the Know Your Customer (KYC) formalities. This is a one-time process that involves providing your Personal Identification Number (PAN) and other details. Once completed, you can use this KYC information across various platforms to invest in direct mutual fund plans. Read more about, how to do KYC for mutual funds.

Here are the steps to invest in direct mutual funds through the Asset Management Company website:

1. Open an account with the AMC

First, you must set up an account with the Mutual Fund House or an AMC. The information provided here is similar to what you would in an application form. But the process of registration might vary from one AMC to another.

2. Select the scheme

This step holds paramount importance in direct investing. Decide on the scheme you intend to invest in and specify the option under which you want to initiate your investment. At this stage, you are presented with two alternatives – Dividend and Growth. Dividend, where returns are paid out periodically, and Growth, where returns are reinvested to enhance the value of your investment over time.

3. Opt for investment details

Make decisions regarding other crucial investment details, such as choosing between a Systematic Investment Plan or Lumpsum, specifying whether a Registered Investment Adviser (RIA) is assisting you or not – and if applicable, providing the RIA Code, and determining the mode of payment.

4. Verification and payment

After entering your information, the subsequent step involves confirming the accuracy of the details to avoid any issues later. Certain Asset Management Companies (AMCs) may require you to authenticate the application form submission using an OTP, which will be sent to your registered email address or mobile number. Finally, to complete the transaction, make the required payment through the chosen method during the information entry. Once the payment is made, you will receive a confirmation sent to your registered number or email ID.

Investment through a Registrar and transfer agent

Mutual fund registrar and transfer agents also offer online platforms for investing in direct plans of mutual funds. The steps to invest in direct mutual funds through a Registrar and Transfer Agent are akin to those when investing through an AMC. However, it is essential to verify that the Mutual Fund Scheme you intend to invest in is registered with the registrar:

1. Choose an RTA

Begin by selecting a reputable Registrar and Transfer Agent. RTAs are authorised by the Securities and Exchange Board of India (SEBI) and are responsible for processing transactions, maintaining records, and managing investor communications. Some well-known RTAs include CAMS, Karvy, and Sundaram BNP Paribas. You can find a list of RTAs and their services on their respective websites or through mutual fund distributors.

2. Complete KYC Formalities

Before investing, ensure that you have completed the Know Your Customer (KYC) process. This involves submitting your PAN card, proof of address, and identity documents. KYC is a one-time process, and once done, it is valid across all mutual fund investments. This step is crucial as it ensures compliance with regulatory requirements and facilitates smoother transactions.

3. Open an account with the RTA

You need to set up an investment account with the chosen RTA. This process typically involves filling out an application form with your personal details, choosing the mutual fund schemes, and specifying your investment preferences. The form can usually be completed online or through a physical submission, depending on the RTA’s offerings.

4. Select the Mutual Fund Scheme

With your account set up, choose the mutual fund scheme that aligns with your investment goals. RTAs offer a range of mutual funds from different AMCs, so you can select a scheme based on factors like performance history, risk profile, and fund objectives. You will also decide between options such as Growth or Dividend plans.

5. Decide on Investment Method

Choose your investment method—Systematic Investment Plan (SIP) for periodic contributions or Lump Sum for a single large investment. Additionally, specify if you need assistance from a financial advisor and provide their details if applicable.

6. Verification and Payment

After submitting your investment details, the RTA will verify your information. You may receive a verification request via email or SMS. Complete the transaction by making the payment through the method of your choice, such as online transfer or cheque. Once the payment is processed, you will receive a confirmation of your investment.

Advantages of investing in direct mutual funds online

Here are several advantages of direct mutual fund investment:

  • Efficiency: Online purchases significantly reduce the time required for investment.
  • Accessibility: Direct investment grants access to a wider range of mutual fund schemes compared to traditional offline methods.
  • Streamlined process: Once KYC (Know Your Customer) details are verified, they can be used to invest in various direct mutual fund schemes across multiple platforms.
  • Convenience: Registering with an Asset Management Company (AMC) eliminates the need for repeated KYC verification for future investments from the same provider

How to invest in direct mutual funds offline?

For those who prefer the conventional method over online investing, the offline method provides an alternative. This involves physically completing and submitting a mutual fund form. One approach is to visit the nearest office of the selected Asset Management Company (AMC). Upon arrival, you will be needed to undergo the KYC (Know Your Customer) process if not already compliant, with the necessary documents available at the AMC branch.

These documents include a self-attested PAN copy, address proof, and a Common application form or an SIP form. Opting for an SIP also requires filling out a NACH Mandate, authorising auto-deduction of SIP amounts. Submission of these forms, along with a cheque or demand draft in favour of the AMC, initiates the transaction, resulting in an allotted folio number and an account statement. Similar processes apply at local RTA offices.

Note that offline methods for direct mutual fund purchases involve physical visits for actions like redeeming fund units or adjusting SIP amounts.

Documents required for investing in direct mutual funds plans

When investing in direct mutual fund plans, you will need the following documents:

  1. Identity proof: Self-attested copies of an identity proof, such as Aadhaar card, Passport, Voter ID, or Driving Licence.
  2. PAN card: Ensure you have a valid PAN card.
  3. Address proof: Provide an address proof document.
  4. Passport-size photograph: Keep a passport-size photograph handy.

Conclusion

Direct mutual fund investments offer a lot of benefits, including cost-effectiveness, potential for higher returns, and increased control over investment decisions. Whether embracing the efficiency of online platforms or the familiarity of offline methods, investors have the flexibility to choose avenues that align with their preferences and financial objectives. As we navigate through these investment landscapes, direct mutual funds stand out as a compelling choice for those aiming for a more direct and efficient route to wealth accumulation.

Essential tools for all mutual fund investors

Mutual Fund Calculator

Lumpsum Calculator

Systematic Investment Plan Calculator

Step Up SIP Calculator

SBI SIP Calculator

HDFC SIP Calculator

Nippon India SIP Calculator

ABSL SIP Calculator

Frequently asked questions

Can I invest directly in mutual funds?

Yes, you can invest directly in mutual funds. By investing directly through Asset Management Companies (AMCs) or online platforms, you can bypass intermediaries, potentially saving on commissions and management fees. This approach allows you to invest in mutual funds without paying additional distributor fees.

Can I buy direct mutual funds using a Demat account?

Yes, you can buy direct mutual funds using a Demat account. A Demat account allows you to hold mutual fund units in an electronic format, simplifying the process of buying, selling, and managing your investments. It offers a convenient and streamlined approach to mutual fund transactions.

Which is better to invest in - direct or regular mutual fund?

Direct mutual funds are generally better for investors seeking lower costs, as they typically have lower expense ratios compared to regular mutual funds. Regular mutual funds often include additional commissions for intermediaries. Choosing between the two depends on whether you prefer cost savings or the guidance of a financial advisor.

Is direct mutual fund safe?

Yes, direct mutual funds are safe. They are regulated by financial authorities like SEBI and are subject to the same rules and protections as regular mutual funds. Investing directly with Asset Management Companies (AMCs) reduces intermediary risks and ensures transparency in your investments.

What is the disadvantage of direct mutual funds?

Direct mutual funds do not offer the advisory services that regular funds do. Investors must conduct their own research and make informed decisions, which can be challenging without professional guidance.

Can I buy direct mutual fund through a demat account?

Yes, you can buy direct mutual funds through a demat account. Many online platforms and brokers facilitate the purchase of direct mutual funds via demat accounts.

Who should invest in direct mutual funds?

Experienced investors who have the time and knowledge to conduct their own research should invest in direct mutual funds. It is suitable for those seeking lower expense ratios and higher returns.

Do we get dividend on direct mutual funds?

Yes, direct mutual funds offer dividends. The dividends are distributed to investors based on the scheme’s performance and the options chosen during investment (growth or dividend).

Which platform is best for direct mutual fund investment?

While there are many platforms available for direct mutual fund investment, some of the popular options include Zerodha, Groww, CoinSwitch, and Kuvera. These platforms offer user-friendly interfaces, low fees, and a wide range of mutual funds to choose from. It's essential to compare different platforms based on your specific needs and preferences before making a decision.

How do I switch to direct mutual funds?

Switching to direct mutual funds from regular funds involves a few steps. First, you'll need to transfer your existing investments to a direct plan of the same fund house. This can typically be done online or through a physical form. You may also need to provide your KYC details and other necessary documents. It's advisable to consult with a financial advisor or refer to your fund house's guidelines for a smooth transition.

Show More Show Less

Related Videos

Bajaj Finserv app for all your financial needs and goals

Trusted by 50 million+ customers in India, Bajaj Finserv App is a one-stop solution for all your financial needs and goals.

You can use the Bajaj Finserv App to:

  • Apply for loans online, such as Instant Personal Loan, Home Loan, Business Loan, Gold Loan, and more.
  • Invest in fixed deposits and mutual funds on the app.
  • Choose from multiple insurance for your health, motor and even pocket insurance, from various insurance providers.
  • Pay and manage your bills and recharges using the BBPS platform. Use Bajaj Pay and Bajaj Wallet for quick and simple money transfers and transactions.
  • Apply for Insta EMI Card and get a pre-approved limit on the app. Explore over 1 million products on the app that can be purchased from a partner store on Easy EMIs.
  • Shop from over 100+ brand partners that offer a diverse range of products and services.
  • Use specialised tools like EMI calculators, SIP Calculators
  • Check your credit score, download loan statements and even get quick customer support—all on the app.

Download the Bajaj Finserv App today and experience the convenience of managing your finances on one app.

Do more with the Bajaj Finserv App!

UPI, Wallet, Loans, Investments, Cards, Shopping and more

GET THE APP

Disclaimer

Bajaj Finance Limited (“BFL”) is an NBFC offering loans, deposits and third-party wealth management products.

The information contained in this article is for general informational purposes only and does not constitute any financial advice. The content herein has been prepared by BFL on the basis of publicly available information, internal sources and other third-party sources believed to be reliable. However, BFL cannot guarantee the accuracy of such information, assure its completeness, or warrant such information will not be changed. 

This information should not be relied upon as the sole basis for any investment decisions. Hence, User is advised to independently exercise diligence by verifying complete information, including by consulting independent financial experts, if any, and the investor shall be the sole owner of the decision taken, if any, about suitability of the same.

Disclaimer:

Bajaj Finance Limited ("BFL") is registered with the Association of Mutual Funds in India ("AMFI") as a distributor of third party Mutual Funds (shortly referred as 'Mutual Funds) with ARN No. 90319

BFL does NOT:

(i) provide investment advisory services in any manner or form:

(ii) carry customized/personalized suitability assessment:

(iii) carry independent research or analysis, including on any Mutual Fund schemes or other investments; and provide any guarantee of return on investment.

In addition to displaying the Mutual fund products of Asset Management Companies, some general information is sourced from third parties, is also displayed on As-is basis, which should NOT be construed as any solicitation or attempt to effect transactions in securities or the rendering any investment advice. Mutual Funds are subject to market risks, including loss of principal amount and Investor should read all Scheme/Offer related documents carefully. The NAV of units issued under the Schemes of mutual funds can go up or down depending on the factors and forces affecting capital markets and may also be affected by changes in the general level of interest rates. The NAV of the units issued under the scheme may be affected, inter-alia by changes in the interest rates, trading volumes, settlement periods, transfer procedures and performance of individual securities forming part of the Mutual Fund. The NAV will inter-alia be exposed to Price/Interest Rate Risk and Credit Risk. Past performance of any scheme of the Mutual fund do not indicate the future performance of the Schemes of the Mutual Fund. BFL shall not be responsible or liable for any loss or shortfall incurred by the investors. There may be other/better alternatives to the investment avenues displayed by BFL. Hence, the final investment decision shall at all times exclusively remain with the investor alone and BFL shall not be liable or responsible for any consequences thereof.

Investment by a person residing outside the territorial jurisdiction of India is not acceptable nor permitted.

Disclaimer on Risk-O-Meter:

Investors are advised before investing to evaluate a scheme not only on the basis of the Product labeling (including the Riskometer) but also on other quantitative and qualitative factors such as performance, portfolio, fund managers, asset manager, etc, and shall also consult their Professional advisors, if they are unsure about the suitability of the scheme before investing.


Disclosure: Bajaj Finance Limited (BFL) is a distributor of Mutual Funds with ARN - 90319 and distributes mutual funds of Bajaj Finserv Asset Management Limited (BFSAMC). BFL receives commission towards distribution of mutual fund products. BFSAMC is a group company of BFL, carrying business on arm’s length basis without any conflict of interest and in accordance with the prevailing law / regulation.