Investing in mutual funds has become increasingly popular among individuals looking to grow their wealth.
While many investors traditionally relied on the services of intermediaries like brokers or agents, the advent of technology has opened up avenues for direct investment in mutual funds.
Direct mutual funds offer several advantages, including lower expense ratios and the potential for higher returns.
In this guide, we will explain how to invest in direct mutual funds and explore the steps involved in the process.
How to Invest in Direct Mutual Funds Online & Offline in India (Updated 2023)
Table of content
Understand Direct Mutual Funds
Before diving into the investment process, it’s essential to have a clear understanding of what direct mutual funds are.
Direct mutual funds are investment schemes where investors directly buy units from the asset management company (AMC) without involving any intermediary.
Unlike regular mutual funds, direct mutual funds do not charge any distributor commissions or brokerage fees, resulting in lower expense ratios. This can significantly impact the overall returns generated by the investment.
Research and Select Mutual Funds
The first step in investing in direct mutual funds is to research and select the funds that align with your investment goals and risk tolerance.
Consider factors such as the fund’s performance track record, the fund manager’s expertise, the fund’s investment strategy, and the fund’s expense ratio.
Various online platforms and financial websites provide information on mutual fund performance, historical data, and expert analysis, which can help you make informed investment decisions.
To invest in mutual funds, including direct mutual funds, you need to complete the Know Your Customer (KYC) process.
This process is mandated by regulatory authorities to ensure the legality and legitimacy of financial transactions.
KYC involves submitting identity proof, address proof, and other relevant documents to verify your identity.
Most mutual fund companies and online investment platforms facilitate online KYC, making the process convenient and time-saving.
Choose an Investment Platform
To invest in direct mutual funds, you can choose between investing directly with the respective mutual fund companies or using online investment platforms.
Direct investment with mutual fund companies requires filling out application forms and submitting them along with the necessary documents.
On the other hand, online investment platforms provide a more user-friendly and hassle-free experience, allowing you to invest in multiple mutual funds from different AMCs through a single platform.
Register and Complete the Application
Once you have chosen the investment platform, you will need to register and create an account.
This typically involves providing personal information, setting up login credentials, and linking your bank account for transactions.
After completing the registration process, you can start investing by selecting the desired direct mutual funds from the available options.
Set Investment Preferences
Before making your investment, it is important to set your investment preferences, such as the investment amount and the mode of investment (lump sum or systematic investment plan – SIP).
Lump sum investment involves investing a large amount at once, while SIP allows you to invest a fixed amount at regular intervals.
SIPs are a popular choice for many investors as they provide the benefit of rupee-cost averaging and help mitigate market volatility.
Make the Investment
Once you have set your investment preferences, you can proceed to invest in the chosen direct mutual funds.
Online investment platforms typically offer a seamless and user-friendly interface, where you can enter the investment amount, select the SIP date (if applicable), and confirm the transaction.
The investment amount will be debited from your linked bank account, and the units of the mutual fund will be allocated to your investment portfolio.
Monitor and Review
Investing in direct mutual funds is a long-term commitment, and it is crucial to monitor and review your investment periodically.
Keep track of the fund’s performance, review your investment portfolio, and assess whether any changes or rebalancing are required based on your financial goals and market conditions.
Regular monitoring allows you to stay informed and make informed decisions regarding your investments.
Ways To Invest In Direct Plans Of Mutual Funds
Investing in direct plans of mutual funds can be an effective way to maximize your investment returns by avoiding distributor commissions and reducing expense ratios. Here are ten ways to invest in direct plans of mutual funds:
1. Invest directly through the AMC:
One of the most straightforward ways to invest in direct plans is to invest directly through the Asset Management Company (AMC) itself.
Visit the website or office of the AMC and inquire about the process of investing in their direct plans.
They will guide you through the necessary steps, including completing the application form and providing the required documents.
2. Online Investment Platforms:
Several online investment platforms facilitate investments in direct plans of mutual funds. These platforms provide a user-friendly interface, research tools, and investment tracking features.
Examples include mutual fund aggregators, online brokerages, and financial technology companies. Register an account on a reliable platform, complete the KYC process, and start investing in direct plans of mutual funds.
3. Mutual Fund Registrar and Transfer Agent (RTA) Platforms:
Mutual Fund RTA platforms offer investment services and online portals that allow investors to access and invest in direct plans.
RTAs act as intermediaries between investors and mutual fund companies, providing a seamless investment experience.
Explore options like CAMS, Karvy, and Sundaram BNP Paribas for investing in direct plans through their platforms.
4. Mobile Apps:
Many mutual fund companies and online investment platforms offer mobile apps that enable investors to invest in direct plans directly from their smartphones.
These apps provide a convenient way to manage your investments, track performance, and make transactions.
Download the app of your preferred mutual fund company or investment platform and start investing in direct plans.
5. Direct Mutual Fund Brokers:
Some brokerage firms specialize in facilitating investments in direct plans of mutual funds.
These brokers provide a range of services, including research tools, investment advice, and access to a wide selection of direct plans.
Research and choose a reliable direct mutual fund broker that suits your investment needs.
4. Registrar and Transfer Agent (RTA) Branches:
Registrar and Transfer Agent (RTA) branches of mutual fund companies provide services to investors, including assistance in investing in direct plans.
Visit the nearest RTA branch and inquire about investing in direct mutual funds. They will guide you through the process and help you complete the necessary paperwork.
5. Investment Advisors and Financial Planners:
Consulting an investment advisor or financial planner who specializes in mutual funds can provide valuable guidance on investing in direct plans.
These professionals have expertise in selecting suitable direct plans based on your financial goals and risk tolerance.
They can help you navigate the investment landscape and make informed decisions.
6. Online Marketplaces:
Online marketplaces or platforms dedicated to investment products and services also offer access to direct plans of mutual funds.
These platforms aggregate information from multiple mutual fund companies, allowing you to compare and invest in direct plans easily.
Explore options like FundsIndia, Paytm Money, and Groww to invest in direct plans.
7. Employee Provident Fund Organization (EPFO):
If you are an employee contributing to the EPF (Employee Provident Fund), you can choose to invest a portion of your EPF corpus in direct mutual funds.
EPFO offers an option called the Employees’ Provident Fund Scheme 1952, which allows members to invest in equities through Exchange-Traded Funds (ETFs). By opting for this scheme, you indirectly invest in direct mutual funds.
8. National Pension System (NPS):
The National Pension System (NPS) in India allows individuals to invest in pension funds, which often include direct plans of mutual funds.
NPS offers a choice of investment options, including equity funds, corporate bonds, and government securities. By opting for NPS, you indirectly invest in direct plans of mutual funds.
Documents Required to Invest in a Direct Mutual Fund
Investing in direct mutual funds offers several advantages, including lower expense ratios and potentially higher returns.
To begin investing in direct mutual funds, there are certain documents you need to provide as part of the Know Your Customer (KYC) process.
These documents are required to verify your identity, address, and financial information. Here is a comprehensive list of documents typically required to invest in a direct mutual fund:
You need to provide a valid identity proof document to verify your identity. Acceptable documents include:
- Aadhaar Card
- Voter ID Card
- Driving License
- PAN Card (Permanent Account Number)
Address proof documents are required to verify your residential address. The following documents are commonly accepted:
- Aadhaar Card
- Utility bills (electricity, telephone, gas, etc.) not more than 3 months old
- Bank or post office passbook with address details
- Rental agreement or lease agreement
- Voter ID Card
- Driving License
You will need to provide recent passport-sized photographs for identification purposes. The number of photographs required may vary depending on the mutual fund company or intermediary through which you are investing.
PAN Card (Permanent Account Number):
A PAN Card is mandatory for investing in mutual funds. It serves as an identification number and is required for tax-related purposes. Ensure that your PAN Card is active and valid.
KYC Application Form:
To complete the KYC process, you will need to fill out a KYC application form provided by the mutual fund company or intermediary.
This form collects your personal information, including your name, contact details, occupation, and other relevant details.
FATCA (Foreign Account Tax Compliance Act) Declaration:
If you are an Indian resident investing in mutual funds, you may need to provide a FATCA declaration form.
This form is required to comply with international tax regulations and ensure that the mutual fund company is not facilitating any tax evasion activities.
Bank Account Details:
You will need to provide your bank account details, including the account number, name of the bank, and branch address.
This information is necessary to facilitate transactions related to investments, including purchase, redemption, and dividend payouts.
Depending on the mutual fund company’s requirements and the nature of your investment, additional documents may be required. For example:
- Proof of date of birth: This can be provided through your passport, birth certificate, or any other valid document that includes your date of birth.
- Income proof: Some mutual fund companies may require income-related documents, such as salary slips, income tax returns, or audited financial statements, for certain types of investments.
It’s important to note that the specific documents required may vary based on regulatory requirements, mutual fund companies, and intermediaries.
It is advisable to check with the respective mutual fund company or intermediary to confirm the exact documents needed for investing in direct mutual funds.
Once you have gathered all the required documents, you can submit them along with the completed application form to the mutual fund company or intermediary.
The KYC process usually takes a few days to complete, after which you will receive a unique KYC identification number (KYC ID).
With the KYC process successfully completed, you can start investing in direct mutual funds.
Advantages of Investing in Direct Mutual Funds Online
Investing in direct mutual funds online offers several advantages compared to traditional methods of investment.
As technology has advanced, online investment platforms have become increasingly popular, providing investors with a convenient and efficient way to access and manage their investments.
Here are some key advantages of investing in direct mutual funds online:
1. Lower Expense Ratios:
One of the primary advantages of direct mutual funds is the lower expense ratio compared to regular mutual funds.
Direct plans eliminate distributor commissions and brokerage fees, resulting in reduced expenses.
When investing in direct mutual funds online, investors can directly access and invest in these plans, thereby saving on these additional costs.
Over time, lower expenses can significantly impact investment returns and enhance wealth creation.
2. Convenience and Accessibility:
Investing in direct mutual funds online offers unparalleled convenience and accessibility.
Online investment platforms are available 24/7, allowing investors to invest at their convenience from anywhere with an internet connection.
This eliminates the need for physical visits to mutual fund offices or intermediaries, saving time and effort. Moreover, online platforms provide a user-friendly interface, making it easy for investors to navigate, research funds, track performance, and manage their portfolios.
3. Wide Range of Investment Options:
Online investment platforms offer a vast array of direct mutual fund options from different asset management companies (AMCs).
Investors can access a diverse range of funds, including equity funds, debt funds, hybrid funds, and more.
This wide selection enables investors to build a well-diversified portfolio that aligns with their investment goals, risk appetite, and time horizon.
Additionally, online platforms provide comprehensive information on fund performance, historical data, and expert insights, helping investors make informed investment decisions.
4. Transparency and Control:
Investing in direct mutual funds online provides investors with greater transparency and control over their investments.
Online platforms offer real-time access to portfolio holdings, transaction history, and fund performance.
Investors can track the progress of their investments, review portfolio allocation, and make changes as per their preferences.
This transparency allows investors to actively monitor their investments and take timely actions based on market conditions or their financial goals.
5. Flexibility in Investment Amount:
Investing in direct mutual funds online offers flexibility in terms of the investment amount.
Investors can start with a relatively small amount, making it accessible to a wide range of individuals.
Additionally, online platforms often provide options for both lump sum investments and systematic investment plans (SIPs).
SIPs allow investors to invest a fixed amount regularly, offering the benefit of rupee-cost averaging and mitigating the impact of market volatility.
6. Faster and Efficient Transactions:
Online investment platforms facilitate faster and more efficient transactions compared to traditional methods.
Investors can complete the investment process within a few clicks, eliminating paperwork and manual processing.
Online transactions are processed swiftly, and units are allocated to the investor’s account promptly.
This agility in transaction processing ensures that investors can take advantage of market opportunities and make timely investment decisions.
7. Enhanced Investor Support:
Online investment platforms provide robust investor support through various channels.
They offer customer service via email, chat, or phone, addressing queries and providing assistance promptly.
Additionally, online platforms often provide educational resources, including articles, videos, and tutorials, to help investors understand mutual funds, investment strategies, and market trends.
This support enables investors to make well-informed decisions and enhance their financial knowledge.
8. Cost-effective Portfolio Management:
Investing in direct mutual funds online allows investors to manage their portfolios more cost-effectively.
Online platforms typically offer features such as portfolio trackers, goal-based investing tools, and performance analytics.
These tools empower investors to monitor their investments, analyze portfolio performance, and make necessary adjustments if required.
With the ability to manage portfolios independently, investors can potentially save on portfolio management fees that would otherwise be charged by financial advisors or portfolio managers.
9. Regular Updates and Notifications:
Online investment platforms provide regular updates and notifications to keep investors informed about their investments.
These updates include NAV (Net Asset Value) alerts, dividend announcements, fund manager changes, and market news.
Such information helps investors stay updated with their investments and make informed decisions.
Online platforms also provide consolidated account statements and transaction history, simplifying the record-keeping process.
10. Security and Privacy:
Online investment platforms prioritize security and privacy to safeguard investor information and transactions.
They implement robust security measures, including encryption technology, firewalls, and secure authentication processes.
Investor data is kept confidential, and transactions are executed securely to protect against fraud or unauthorized access.
Furthermore, online platforms comply with regulatory guidelines and adhere to strict data protection standards, ensuring the safety of investor assets and information.
In conclusion, how to invest in direct mutual funds offers several advantages, including lower expense ratios and the potential for higher returns.
By understanding the process and following the steps outlined above, you can start investing in direct mutual funds and take control of your investment journey.
Remember to conduct thorough research, select suitable funds, complete the necessary KYC requirements, choose a reliable investment platform, set your investment preferences, and monitor your investments regularly for optimal results.
Frequently Asked Questions
Q1. What are direct mutual funds?
Direct mutual funds are investment schemes where investors can directly invest in mutual funds without involving intermediaries or distributors.
Q2. How can I invest in direct mutual funds?
To invest in direct mutual funds, you can follow these steps:
- Complete the KYC (Know Your Customer) process by submitting the required documents.
- Choose a reliable online investment platform or visit the website of the respective AMC.
- Create an account on the chosen platform or AMC website.
- Browse and select the direct mutual fund(s) you wish to invest in.
- Provide the necessary investment details, such as the investment amount and payment method.
- Review the transaction details and confirm the investment.
- Make the payment online through net banking, debit card, or any other available payment method.
- The units of the chosen mutual fund(s) will be allocated to your account.
Q3. What are the advantages of investing in direct mutual funds?
Investing in direct mutual funds offers several advantages, including:
- Lower expense ratios due to the absence of distributor commissions.
- Access to a wider range of funds and investment options.
- Transparency and control over investments.
- Convenience of online access and management.
- Potential for higher returns due to lower expenses.
- Flexibility in investment amounts and systematic investment plans (SIPs).
- Faster and more efficient transactions.
- Enhanced investor support and educational resources.
Q4. Can I switch from regular mutual funds to direct mutual funds?
Yes, investors have the option to switch their investments from regular mutual funds to direct mutual funds.
Q5. What is the difference between regular and direct mutual funds?
The primary difference between regular and direct mutual funds lies in the expense ratio. Regular mutual funds include distributor commissions, which are passed on to the investors in the form of higher expenses.