Mutual Fund Investing - Direct Plan Or Regular Plan
Last Updated: Nov -13-2019
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Investing your money in any financial or non-financial asset needs courage and thorough planning, because it is the hard-earned money which is at stake. There was a time when mutual fund investment was not favored. People worried about the amount of risk involved in the investment. However, with proper awareness, a large crowd of people are investing into mutual funds. They have realized that although involves risks, the returns are high, and the money is kept safe. This is increasing the number of investors every year.
In this blog, we will know the two types of plans in mutual funds investment and the advantages of each. How to choose between the two plans and what are the ways of investment? When it comes to mutual funds, it’s important to choose the correct plan according to your financial requirements. Understanding the different plans gives a clarity about which one is the best choice and why.
Mutual fund investing offers the two distinct plans – Direct Plan or Regular Plan.
In the Direct Plan the investor can invest without the need for any mutual fund agent. Whereas, in the Regular Plan, the investment is made with the help of a financial intermediary. Apart from this, the only difference in both the plans is the expense ratio which is the recurring expense in every mutual fund scheme.
Let us look at both the Direct Plan in detail and understand how it is different from the Regular plan for Mutual Fund investing.
Investing through direct plan is similar to shopping. Just like while shopping a product you really don’t need the help of its manufacturer, similar while investing in mutual fund you don’t need the help of any agent. You can simply invest on your own just as you can shop whatever you wish to. Since the intermediaries are eliminated, there is a significant cost reduction involved in investment plan. Since, there is no agent involved, investor can save on commission costs. This saving is added to the returns of the scheme, which makes the Direct Plan more profitable that the Regular Plan.
The savings are added every year creating a separate Net Asset Value (NAV) which is higher than the Regular Plan’s NAV. This difference is way higher than you can imagine because the investment period is higher in Direct Plan than in the Regular Plan.
Needless to say, since investing through Direct Plan does not involve the assistance of an agent, the investor must be well-versed with the details and must have knowledge about mutual funds. Prior experience in mutual funds investment is favorable since it gives the clear picture of all the positives and negatives about the same. In addition, the investor must know how to deal with the unexpected situations if they arise.
The investor must regularly study the market fluctuations to understand how his or her investment is growing. The investor is sole responsible for his or her financial decisions. Hence, if you are a newbie and have no clue about mutual funds investment and Direct plan is not meant for you. In order to save on commission costs, you will end up losing your hard-earned money into wrong investments. To begin with, you can invest through Regular Plan with the help of an agent who can assist you with your financial decisions. Once you understand the market and how mutual funds work, you can easily shift from Regular Plan to Direct Plan.
While making the switch from Regular to Direct investment plan, you need to take care of your tax liabilities related to short Vs long term capital gain and might also have to pay early exit fees if applicable. The transaction can be done directly via AMC online portal. You simply need to fill in the online form with essential details like scheme name, folio number, and holder details.
The best way is to hold on to your existing investment until the cooling off period with Regular Schema and start a new investment under the Direct Plan. On maturity of your existing investment, you can switch it to direct plan as well. Generally, for SIP and lump sum investment Direct Plans are preferable.
Having understood the details of Direct Plan and its difference from Regular Plan, let us now look at the steps to invest in a Direct Plan.
- Login to AMC Mutual Funds website
- You can choose from 42 AMCs who provide mutual fund services
- Physical application form can be submitted at the investor service center of the concerned AMC or at its registrar and transfer agent by selecting “Direct Plan”
- Online form can be submitted through Mutual Funds Utility (MFU) portal
- Zerodha is a famous discount broker who offers a mobile app – Zerodha Kite which allows users to apply for Direct Mutual Fund investment. It offers several other mutual fund plans on a single platform.
- Some private broking firms offer online portals that provide robo-advisory financial planning services. These services are chargeable, and investor must give it a proper thinking before opting them
- To open an account with the AMC, you need to submit PAN Card, Aadhaar Card, and your bank account details. Post submission, the KYC must be completed.
Applying for a Direct Plan of mutual fund investment through AMC has another advantage; you do not need a Demat account. You need a Demat account only if you wish to apply for a Regular Plan. In addition to applying through an AMC, one can also apply using other facilities such as Mutual Fund (MF) Utility, CAMS/ Karvy, or online platforms from SEBI-registered investment advisers (RIAs) that provide Robo advisory.
Direct plans are for the experienced mutual funds investors who wish to reduce costs on commission and gain more returns than usual. The investor must be ready to manage everything; starting from filling up the application, to managing the funds as the market fluctuates. To ensure that all of that goes smoothly, the investor should have thorough knowledge about the market, and all essential details of the mutual funds scheme.
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