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Direct Mutual Funds

In India, mutual funds are available in two categories- Direct Mutual Funds and Regular Mutual Funds. The direct mutual funds, as the name suggests are bought directly from the AMC, i.e. the Asset Management Company. The AMC is the company that manages the Mutual Fund on behalf of the investor. A regular mutual fund, on the other hand, are bought from an agent, broker or even a distributor. When it comes to the direct mutual funds, the investors can buy them directly from the AMC. Though, not all investors may be able to understand the intricacies that are involved in such funds, but of late, thanks to the growing awareness about the benefits of investing money in direct mutual funds, has attracted a lot of investors. In January 2013, the Securities and Exchange Board of India (SEBI) made it compulsory for all the asset management companies to have the option of direct sale of mutual funds to the investor. The introduction of direct mutual funds allowed the investors to buy mutual funds directly from the company without the involvement of an agent or a broker.

Benefits of Investing in Direct Mutual Funds

The low-cost and affordability of direct mutual funds have become popular by the day. When you buy a regular mutual fund, it has to go through either an agent or a distributor. Thus, the direct mutual funds are lower in cost than their regular counterparts as there is no commission that needs to be paid to the distributor. Hence, all benefits are passed on to the investors. So, the inbuilt cost for direct mutual funds are lower than the regular ones. This is because, the cost of a fund includes the brokerage that needs to be paid to the distributor for selling that fund. Also, just because, direct mutual funds do not have commission that needs to be paid, their returns are usually higher than the regular funds. This is because the cost is lower for direct funds.

Regular vs Direct Mutual Funds

As discussed earlier, regular and direct mutual funds are the same schemes that are run by the same fund managers, but the one thing that separates them is from where you buy them. In case of a regular plan, your AMC pays a charge to your broker.

Pros of investing in a Direct Mutual Fund

  • Lower Cost for Direct Mutual Funds:

When you purchase units of a direct mutual fund, you do the same from the asset management company directly. Thus, there is no person in between to whom a brokerage needs to be paid. Hence the cost for distributing the same is lower than regular mutual funds. This is because, brokers or agents undergo a cost to acquire customers and provide service to them as well. This is why people may prefer to invest through a distributor inspite of the fact that a direct mutual fund is available for investment. If the investment corpus is huge, it makes sense to invest directly with the Asset Management Company, but not otherwise. The down-side of investing with direct mutual fund is quite high.

  • Higher Returns for Direct Mutual Funds: Even though a direct plan and a regular plan will have similar mutual fund schemes, the expense ratio would be different. The expense ratio is the yearly cost of having the scheme. In case of a direct mutual fund, the expense ratio is lesser as savings have been made by not paying for any commission. When this amount is added to the returns, the result is a greater NAV. It should be kept in mind that even though the NAV for direct plans is higher, it doesn’t mean that direct mutual funds are costlier than regular plans. A higher NAV would give you higher returns.

Cons of investing in a Direct Mutual Fund

The distributor provides a lot of service associated with the mutual fund, which is otherwise not available for direct funds. For example, if you choose to buy 10 mutual funds from 5 different Asset Management Companies, all 10 transactions need to be processed separately. The same can be done from a CAMS or a KARVY platform as well, provided you are well aware of who the Registrar is for which fund.

The biggest issue comes after the investment is done. Consolidating the portfolio for different investments on separate AMC platforms might become quite a cumbersome task! It is way easier to operate from a distributor or a bank, which provides a consolidated statement for all your requirements at the click of your fingertip! Starting with your annual capital gain statements to your consolidated investment portfolio statements, it can be provided to you at your fingertips in case of investments through a distributor. Also, distributor comes with service and advice. For a large investment portfolio, a distributor comes handy as multiple transactions with multiple Asset Management Companies become difficult to manage in multiple platforms!

How to Invest in Direct Mutual Funds

The benefits of investing in a direct mutual fund have made more and more people interested in them. There are three ways to start a direct mutual fund- Lump sum, SIP and STP. Each of these three methods has its own pros and cons. Let us discuss them individually:

Investing in Lump Sum

If you wish to invest in the mutual funds in a single one-off investment, then this plan is for you. However, when investing a larger amount of money, it is important to space it over time, rather than timing the market. Also, ‘timing the market’ might not be an easy job and you might want to take the guidance of a more seasoned investor or a market expert. When invested at the right time, your direct mutual funds can get you great returns.


A systematic investment plan is the best option for a new investor. You can choose a specific amount that you wish to invest every month into the direct mutual funds. This amount will then be deducted every month from your bank account to the scheme that you have chosen. SIPs are so popular these days because of their flexibility. You can change the amount that is to be invested and also the tenure of the investment. When you invest in a systematic investment plan the risk of a fluctuating market also decreases as the rupee cost is averaged over the period of time. The SIP also lets you invest for a longer duration of time that too without burdening your pocket more than you can tolerate. Also, when you stay invested for long, the possibility of higher returns also increases.


STP that stands for a Systematic Transfer Plan, is a practical scheme for those investors who have already invested in mutual funds. For the mechanism of STP to function the investments must be from the same mutual fund house. Although, if you have invested in a regular scheme of mutual funds, you can transfer that to direct mutual funds of the same scheme. In a STP also the pre-decided amount gets invested, and units are redeemed and then reinvested in the direct plan of the scheme that is targeted.

Investing Online

Purchasing direct mutual funds online makes the process easier, as you have the liberty to take your own time in selecting a plan and can do so from the comforts of your home or the workplace. When you purchase a plan online and within the scheduled time, you can get the benefit of same-day NAV.

FAQs on Direct Mutual Funds

What is direct mutual fund investment?

As the name suggests Direct mutual funds are mutual funds that are bought directly from an asset management company.

Can I buy direct mutual fund through demat account?

Yes, you can buy mutual fund through demat account. However, in that case it can only be transacted through your demat account and not in any other way as the units would be held in a dematerialized manner in your demat account.

Can I increase my SIP amount?

Yes, you can increase your SIP amount at any time. In fact, it is advisable to do so as well. You need to intimate your AMC and follow their process of doing the same, either online or offline. Let us say, for example, you pay INR 5,000 every month for the next 20 years. With a moderate return of 12% after 20 years, you would receive an amount of INR 50 lakhs. But if you add INR 500 to your SIP amount on an annual basis, it would make your funds reach about INR 80 lakhs.

Does HDFC offer direct mutual funds?

Yes, HDFC offers direct mutual funds for all their top funds.

What is the difference between direct and regular fund?

The direct mutual funds, as the name suggests are bought directly from an AMC that stands for an asset management company whereas regular mutual funds are bought from an agent or maybe a distributor.

What is dividend in mutual fund?

There are two schemes that are offered by a mutual fund- growth and dividend. If the investor chooses the dividend the company shares the profit with the investors. Dividends provide steady and reliable payment to the investor, on a regular basis. The NAV of the growth scheme is higher as the money is reinvested in the mutual fund, whereas in the case of the dividend, the amount goes to the investor.

What is the difference between dividend and growth mutual funds?

Mutual funds offer two types of schemes-growth and dividend. In the dividend scheme, the profits that are made by the company are given to the investor on a regular basis, whereas in case of the growth scheme the profits that are made are used put back into the scheme. The NAV of the growth scheme is higher as the money is reinvested in the mutual fund, whereas in the case of dividend, the amount goes to the investor.