What is a direct plan in mutual funds?

Direct plans in mutual funds are investment options that allow investors to invest directly with the Asset Management Company (AMC) without involving intermediaries such as distributors or brokers. Since direct plans bypass intermediaries, there are no commissions paid for distribution and advisory services, resulting in relatively lower expense ratios and potentially higher overall returns for investors.

Benefits of investing in mutual funds direct plan

You must be intrigued about the benefits of investing in direct plans now that you understand the concept of what is a direct plan. Here are three potential benefits:

Lower expense ratio: Because of the absence of intermediaries, mutual fund direct plans may entail a relatively lower expense ratio. This reduces the overall cost of managing the fund.

Convenience: Investing in direct plans is relatively straightforward, with investors being able to purchase units directly from the mutual fund house through online platforms, mobile apps, or physical branches.

Transparency: Since investors are dealing directly with the AMCs and there are no commissions paid to intermediaries, investors have a clear understanding of the total expense ratio and can assess its impact on overall investment returns.

Who should invest in mutual fund direct plans?

Now that you know the mutual fund direct plan meaning, you may be wondering if it is suitable for you. Direct plan investments can be suitable:

  • You are an experienced investor who possesses a good understanding of the financial markets, investment instruments, and risk management strategies.
  • You prioritise cost-efficiency and aim to minimise expenses in your investment portfolio by eliminating distributor commissions and intermediary fees.
  • You are a Do-it-Yourself (DIY) investor who prefers to take a hands-on approach to investing.
  • You want to manage your portfolio independently and can customise your investment strategies on your own based on insights provided by AMCs and fund managers.

Factors to consider before investing in a mutual fund direct plan

In-depth research: Investing in direct plans requires investors to conduct thorough research, analyse fund performance, and understand market dynamics to select suitable mutual funds.

Risk management: While direct plans offer the potential for higher returns, they may also carry inherent market risks. Investors should diversify their portfolios across asset classes to mitigate risk and achieve the optimal risk-adjusted returns potential.

Investment horizon: Direct plans are suited for investors with a long-term investment horizon, as they may offer significant benefits in terms of lower overall expenses over a long horizon.

Mutual Fund investment are subject to market risks, read all scheme related documents carefully.
This document should not be treated as endorsement of the views/opinions or as investment advice. This document should not be construed as a research report or a recommendation to buy or sell any security. This document is for information purpose only and should not be construed as a promise on minimum returns or safeguard of capital. This document alone is not sufficient and should not be used for the development or implementation of an investment strategy. The recipient should note and understand that the information provided above may not contain all the material aspects relevant for making an investment decision. Investors are advised to consult their own investment advisor before making any investment decision in light of their risk appetite, investment goals and horizon. This information is subject to change without any prior notice.