A Beginner’s Guide to investing in Direct Mutual Funds: You must have heard of the slogan “Mutual Funds Sahi Hai”. AMFI or Association of Mutual Funds in India has started the campaign in early 2017 as an initiative for making you aware towards Mutual Funds. The purpose of this campaign is communicating to you that Mutual Fund investing is the right choice that you can make.
Investing in Mutual Funds is one of the most appropriate ways that you can opt for generating long-term wealth for yourself. Investing in mutual funds is convenient even at a low cost. Apart from that, it is well-regulated, has transparency, and it offers the benefit of diversification to the investors like you. (If you are fresher in the field of Mutual Fund investing, here are some of the important jargons for you should know).
Direct vs Regular Plans
With effect from the very beginning of the year 2013, the SEBI had made it compulsory for all Mutual Fund houses of having two versions of each scheme i.e. Direct plan & Regular (or Indirect plan).
In a Direct plan, you can invest directly in a scheme of a Mutual Fund AMC at a low cost. The direct plans are cheaper than the regular plans because you will be saving costs in terms paying commission to intermediaries.
Looking at both the plans, the difference in returns seems to be as low as 0.25% which can go up to 1%. In the long-term, these differences result in significant amounts. So, this clearly evident that you should always go for investing in the Direct plans of Mutual Funds. (Have a look at what AMFI says about Direct Plan here)
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How to invest in Direct Mutual Funds?
Now that you have the basic understanding of direct plants, let us have a look at the different ways through which you can invest in the Direct plans of Mutual Funds in India.
Mutual Fund Websites and Apps
These days you will find almost all AMCs operating in India having their online presence. So by creating an online account with an AMC you can easily purchase and redeem your units, switch from one fund to another, set up SIP and SWP with ease. Here, you would be directly transacting with the AMCs through their websites. No third party is there to poke his/her nose in between.
Anyways, a minor problem in this method of Mutual Fund investing is that you need to remember your sign up details for every AMC whose units you have got in your portfolio.
Apart from that the process of investing and redemption varies across the apps and websites of different AMCs. So, it is highly probable that you would find the entire process cumbersome, thereby showing less interest in creating a diversified portfolio and ending up sticking to a single Fund house. Even if you have managed to invest across several AMCs through their online portals, it might be a little difficult for you to analyze your entire portfolio at one place.
Registrar And Transfer Agents (RTAs)
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Registrar and Transfer Agents (RTAs) handle transactions of the Mutual Fund entities on behalf of them.
In India, the majority of the Mutual Funds are served by the two RTAs named Computer Age Management Services (CAMS) and Karvy. These two offer Mutual Fund investment services across diverse AMCs through their websites and apps. Here, you just need to remember one or two login details for the same. You can also invest in the Mutual Funds through these RTAs by personally visiting their offices.
In case you also want to invest in those AMCs not covered by the said two RTAs, then you have to check out the other RTAs as well.
You can perform Mutual Fund investing from almost all demat accounts. However, here you will have the option of investing only in the regular plans.
Earlier the service charge was Rs 50 per month plus GST if your total investment had crossed Rs 25k and now it is completely free. Through the Coin platform, you can invest in almost all Indian Mutual Fund AMCs. You can view and analyze your portfolio in one place. What you need to do is remember just a single login id.
Note: Although you can invest in the Mutual Funds for free in Zerodha you have to pay the annual maintenance charges associated with your demat account. Furthermore, you are not going to get any free or paid investment advisory services through Zerodha.
MF Utilities (MFU)
MF Utilities (MFU) is an online portal connecting investors, Mutual Fund distributors, Mutual Fund houses, collection banks, payment aggregators, and RTAs.
Having an account with the MFU allows you to invest across 27 AMCs in India. After you have signed up with MFU, it provides you with a Common Account Number (CAN) which you can use across all the twenty-seven participating AMCs.
By logging into the MFU portal, you can easily invest in any of such 27 mutual fund AMCs. You can conveniently carry out multiple transactions across various mutual funds on a single platform.
Furthermore, at a time you need to pay only once to invest across more than one scheme. Well, MFU if is of no use to you if you want to invest in any Fund house falling outside of these 27 AMCs. In addition to that, the user interface of the MFU is not at all great and there is still a substantial scope of improvement. You can read more about MFU here.
Robo-Advisory Apps & Websites
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India has witnessed a lot of websites and apps in the last 2 to 3 years who offer to invest in Direct plans of mutual funds. Some of the platforms are linked with MFU while the rests have direct integration with the Mutual Fund AMC. One of the most popular robo advisor in united states in Betterment which was founded in 2008. Few of the popular robo advisor in India are Arthayantra, 5nence, Invezta, Scripbox etc.
Most of such websites and apps are user-friendly in nature and are fee-based robo-advisory services. It means that the investment recommendations come from the algorithms created by the experts. If you would like to get expert advisory services having a human element in it, then it would cost you more.
You would come across some robo-advisory platforms which offer free investment services but let you invest only in the regular funds. Others may allow you to invest in direct funds against some fees or they might charge money from you against rendering investment advice.
Also read: A Quick Guide to Robo Advisors in India.
How to get started?
So far we have discussed the ways of Direct plans Mutual Fund Investing. But, how would you choose the right platform for yourself? Let us throw some light on the same.
First, if you are looking to invest in the schemes of a very few AMCs, you can invest through the online portals of such AMCs.
In case you would like to select from a heavy portfolio, then you should consider investing through an RTA.
Third, do you think you need any professional help for your mutual fund investing? If yes, then you can opt for online platforms where an expert provides you with customized investment recommendations. It might seem to be a cumbersome process for you to choose one such platform for yourself.
Finally, if you are looking for a robo-advisory platform having a better user interface, then you can associate with any of such against a monthly or flat fee for your mutual fund investing. In the long-term, as your mutual fund portfolio will grow, the flat fee structure will seem more cost-effective. On the other hand, in case of the monthly fee system, a percentage of your invested corpus will be charged on your account on a monthly basis. Robo-advisory platforms are new concepts altogether and you may go ahead with it to experience Mutual Fund investing in a newer way.
That’s all for this post. I hope it was useful to you. If you have any additional questions regarding investing in direct plans of mutual funds, please comment below. Happy Investing!