Mutual funds are an investment program that enables investors to diversify their holdings and get them professionally managed.
Ever since SEBI introduced reforms in the mutual fund sector, direct plans in mutual funds have become the new hot topic.
Even though people are investing through direct plans, many are skeptical about them.
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So why should people invest in direct mutual funds and who should do it?
Let us find out:
What are Direct Mutual Funds?
Although the Asset Management Companies (AMC) allowed this much before the year 2011, direct investment in mutual funds has become famous only recently.
There were no separate plans for these investments before and were made in the distributor plan itself.
These plans were tracked with a single NAV (Net Asset Value).
Before the introduction of direct plans in 1st Jan 2013, the investors were bound to buy mutual funds based on the NAV of the distributor plans.
In simple words, direct mutual funds are those mutual funds in which the AMC or the mutual fund houses do not charge transaction charges.
Hence the NAV of a direct plan mutual fund will be higher compared to a regular one.
But, in the case of both direct and regular mutual funds, the investment objective and the investment mix is the same.
How to invest in direct mutual funds?
Investing in direct mutual funds is much easier compared to regular plans.
The only thing needed to do is to fill-up the mutual fund investment form and tick the option for “direct plan”.
After this, even if the agent or the distributor of the scheme puts his/her ARN code, they will not get any commissions from the investment.
The ARN code is the unique code which is used to identify the mutual fund agent.
Sometimes, it can happen that there is no option for direct plans in the form.
In that case, the investor has to mention ‘DIRECT’ in the ARN column.
Also, if by any chance, the agent code is missing in the ARN column, it will become a direct plan by default.
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How to switch from Regular to Direct Mutual Funds?
The investor has to convert his/her mutual fund from regular to direct plans.
The existing plans i.e. regular plans of mutual funds are not switched directly even if there was no agent involved and the funds were created with the AMC directly.
The funds will have the same expense ratio as the old regular funds.
In order to convert an existing regular fund to a direct fund, the investor has to submit a switch request.
The switch request is a written request asking the AMC that the existing mutual fund is to be converted into a direct plan.
Once this request is submitted in the proper order and processed, the regular plan becomes a direct mutual fund plan.
Know more how easily you can calculate your returns on mutual fund investment
Mutual funds are a good investment option for people who do not have the time or knowledge to invest in the financial markets.
They are provided the ability to reap the benefits of the markets in a more risk-averse and diversified way.
Take Care and Keep Learning!!