Mutual funds are now a favoured choice for individuals to gradually invest their money and grow their wealth. The Direct Mutual Fund Scheme stands out for its potential benefits among the various mutual fund options. This guide is dedicated to unravelling the concept of direct mutual fund schemes and highlighting why you should incorporate them into your investment approach.
What is a Mutual Fund?
Before we dive into the advantages of direct mutual fund schemes, let’s briefly understand what mutual funds are. Mutual funds are a pool of funds collected from multiple investors with a common investment objective. Proficient fund managers are in charge of these funds, investing the gathered capital into different assets, such as stocks, bonds, or a mix of both, aligning with the fund’s objectives.
Investors in mutual funds own units of the fund, and the value of these units changes depending on how the underlying assets perform. Mutual funds offer a hassle-free way for individuals to get involved in a diversified investment mix and benefit from the experience of professional fund managers, all without the demand for substantial funds or active control.
What Are Direct Mutual Fund Schemes?
Direct Mutual Fund Schemes belong to a distinct category of mutual funds separate from typical mutual fund schemes regarding cost ratios and investment methods. Here’s what sets them apart:
- Lower Expense Ratios: Direct mutual fund schemes typically have lower expense ratios than regular mutual funds. The expense ratio is the yearly fee that the fund management company charges for managing the fund. In the case of direct plans, this fee is lower because no commissions are paid to intermediaries like brokers or distributors.
- No Commission Fees: Intermediaries receive commissions for selling the fund’s units in regular mutual funds. These commissions are paid from the investor’s assets, reducing their returns. In direct mutual fund schemes, no commission fees are involved, allowing investors to enjoy the full returns generated by the fund.
- Direct Investment: Investors deal directly with the mutual fund company or its online platform to invest in direct mutual fund schemes. There’s no involvement of intermediaries or advisors. Using this direct investment method, you take a direct route and avoid commission charges.
Advantages of Direct Mutual Fund Schemes
After clarifying what direct mutual fund schemes consist of, let’s assess why you should consider including them in your investment plan.
- Cost-Efficient: Direct mutual fund schemes are cost-efficient because you’re not paying commissions to intermediaries. It implies that you can put in the same amount of money and gain greater worth from your investments as time goes on.
- Higher Returns: The primary benefit of direct mutual fund schemes is the likelihood of achieving greater returns. With lower expense ratios and no commission fees, more of your money is actively invested, leading to potentially greater long-term returns.
- Transparency: Direct plans provide transparency in terms of costs and returns. Since there are no hidden commissions, you enjoy a transparent view of your investment results and the fees you’re shelling out.
- Control: Investing directly gives you more control over your investment decisions. You can choose the specific funds that align with your financial goals and risk tolerance without the influence of intermediaries.
- Easy Accessibility: Many mutual fund companies offer online platforms where you can conveniently invest in direct mutual fund schemes. These platforms provide resources (comprehensive blogs/articles on each topic) and insights (historical comparison of the returns) to guide you in making informed investment decisions.
- Flexibility: Direct mutual fund schemes allow you to switch between funds or adjust your portfolio as needed. You can modify your investments to suit altering financial objectives or market conditions.
- Long-Term Savings: Thanks to their cost efficiency and the potential for increased returns, direct mutual fund schemes make excellent selections for long-term savings, whether for retirement planning or gradually amassing wealth.
How to Invest in Direct Mutual Fund Schemes
Investing in direct mutual fund schemes is straightforward:
- KYC Verification: Complete the Know Your Customer (KYC) verification process, mandatory for all mutual fund investors in India. You can do this through the mutual fund company’s website or a registered KYC agency.
- Choose the Fund: Select the specific direct mutual fund scheme(s) you want to invest in. Consider your financial objectives, willingness to accept risks, and investment time frame when deciding.
- Online Investment: Visit the mutual fund company website or use an authorised online platform to invest directly. You’ll have to create an account and supply the requisite details for the investment.
- Investment Amount: Decide how much you want to invest and follow the instructions. You can set up a systematic investment plan (SIP) for regular contributions or make lump-sum investments.
- Monitor and Manage: Monitor your investments and regularly review their performance. Adjustments or portfolio rebalancing can be undertaken to maintain alignment with your financial goals.
Final Words
Direct mutual fund schemes provide a superb method for investing efficiently, optimising returns, and exerting greater control over your investments. Thanks to reduced expense ratios and zero commission charges, they can be a valuable supplement to your investment collection, particularly for long-term financial objectives. Consider including direct mutual fund schemes in your investment strategy to benefit from their cost-effective and transparent approach.