Mutual funds are a great tool to invest in the securities market, enabling investors to achieve inflation-indexed returns over time. Some investors, who are not financially savvy, may prefer to take the help of agents or distributors to guide them, while others may like to take investment decisions by themselves.

2 plans: regular and direct

Investors who like to invest on their own, prefer the direct plan as this does not include commission charges. Those who prefer doing the investments through an agent can invest through the regular plan, which has a relatively higher expense ratio compared to the direct plan. However, though two plans are offered, the portfolio of the scheme is the same for both.

Ways of investing in direct plan

• Directly through the AMC website: Investors can complete the application process by clicking on the ‘Direct Plan’.
• RTA website/other direct investment platforms: Mutual fund registrar and transfer agents, such as CAMS and Karvy, also provide online platforms to invest in direct plans of mutual funds. There are other direct investment platforms that facilitate such investments like MF Utilities, etc.
• Physical form: In case of a physical application form, investors should mention that they are opting for direct investment by writing the word “Direct” where the broker/distributor code is filled.

Switching

Another way of moving to a direct plan is by switching an existing investment in a regular plan to the direct plan of the same scheme. This involves redemption from one plan and investment into another plan, which may entail tax implications.

Points to note

• KYC is mandatory for any investment in mutual fund, including direct plans.
• Each mutual fund scheme offers a direct plan and a regular plan.
• The NAV of a direct plan tends to be higher than that of a regular one as the commission component is absent in the former.

Content on this page is courtesy Centre for Investment Education and Learning (CIEL).
Contributions by Girija Gadre, Arti Bhargava and Labdhi Mehta.