How to Invest in Direct Mutual Funds

Learn all about how to invest in direct mutual funds.
How to Invest in Direct Mutual Funds
4 mins read
20 Feb 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.

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 asset management company (AMC) website

If you prefer the online mode, you can buy direct mutual funds online. As a first-time mutual fund investor, you must complete the KYC formalities. This is a one-time process; thus, you can use this information across all platforms to invest in direct mutual fund plans. Your PAN is crucial here, as all Mutual Fund companies need KYC details.

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.
  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. Open an account with the Registrar and Transfer Agent
  2. Select the scheme
  3. Choose investment details
  4. Verify details and make the payment

Advantages of investing in direct mutual funds online

Investing in direct mutual funds online has several advantages. Firstly, it is more convenient than the offline mode. Secondly, you can invest in your desired direct mutual fund schemes in several ways – with the Asset Management or Mutual Fund Company or with the Registrar and Transfer Agent (R&TA). Thirdly, there are lot of options to choose from when investing online.

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.

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Frequently asked questions

Can I invest directly in mutual funds?

Yes, you can invest directly in mutual funds without going through a distributor or advisor. Many mutual fund companies offer online platforms for direct investment.

Can I buy direct mutual funds using a Demat account?

No, direct mutual funds are typically purchased through the fund house's website or online platforms. While a Demat account is used for trading securities like stocks and bonds, it is not necessary for buying direct mutual funds.

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

Investing in direct mutual funds usually offers lower expense ratios, resulting in potentially higher returns compared to regular mutual funds. However, direct funds require investors to research and manage their investments independently, whereas regular funds provide advisory services at a higher cost.

Is direct mutual fund safe?

Direct mutual funds are safe as they are regulated by SEBI and operate under the same regulatory framework as regular mutual funds. However, investors need to conduct their research and make investment decisions independently without the guidance of financial advisors.

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