Should you do Investment in Direct mutual funds?

There are different types of plans in mutual funds. Have you ever heard about direct mutual fund? Do you know what they are and how you can make the most out of them? For your information, in the present time, when you invest in mutual funds you has two options: Mutual Fund Regular Plan and that of Mutual Fund Direct Plan.

What really is A Mutual Fund Direct Plan?

Direct mutual fund investment plans got introduced by the Securities and Exchange Board of India (SEBI) in the January of 2013. It made it mandatory for all the mutual fund houses to launch ‘Direct Plans’ for all types of the schemes. Here you should know that with direct mutual fund the investors can eliminate the middle man. The investors can directly route their money into mutual funds. There is no type of guidance of the advisor/ agent. The investors do their own research or bank on external research reports.

The transactions could be performed online or even physically if the investor visits the registrar’s or the asset management company’s office. Moreover, since, transactions get routed in a direct manner; no commissions are paid by the fund house on the cash the investors invest. Hence, the expense ratio for the Direct Plan is lower as compared to that of the Regular Plan. Regular Plan on the other side is the traditional type of plan. In this plan you invest or transact via a mutual fund distributor or an agent or even relationship manager. The investor is guided by this middleman and he carries out all the operational tasks for the investor. You know fund house pays commission on the money the investor invests to distributors or the relationship managers. Because of this distribution cost the investors incur a huge expenses ratio in a regular plan.

What is the basis behind direct mutual fund?

Well, the idea behind this concept was to cut off the lengthy chain of distributors and agents that always adds to the price structure of the fund houses. In return, the mutual fund houses would pass on these price savings to the investors in the shape of the lesser expense ratio. The expense ratio tells the investors how much as a percentage of the scheme's quantity the total expenditures are. This in order was believed to improve the returns for the investors.

Why do investors hesitate investing in direct plans?

The biggest reason is the lack of awareness and insufficient investor education. Moreover many prefer a broker to carry out their transactions and render proper and experienced advice. Hence, many investors are there who are still away from the realm of mutual fund direct plans. However various people ignore the small difference of expense ratio between regular and that of direct plan. But you know in the long run such a gap cannot be ignored.

Conclusion

Thus you can also think of direct mutual fund if you haven’t done it yet. After all, it is all about your profits and if you acquire some knowledge and then put forward your step, you might experience productivity. Learn more at Gulaq Mutual Fund Blog