Whenever you shop, you might always be on the look-out for discounts. After all everyone wants to save costs. But when talking about mutual fund investing, retail investors appear to be reluctant to do so. Lower participation in plans like that of direct plans catered by mutual funds, mainly in the equity category, suggests that investors still give preference to the conventional route of “going through distributors” to do investment in mutual funds.
What do you mean by a Mutual Fund Direct Plan?
You know direct mutual fund plans were introduced by the Securities and Exchange Board of India (SEBI) in the January of 2013. It made mandatory for all mutual fund houses to do launch ‘Direct Plans’ for all schemes.With direct mutual fund you remove the middle man. And directly route your cash into mutual funds. There is no guidance of the advisor or that of an agent. You do your own research or bank on external research reports.
The transactions can be carried out online or even physically by visiting the registrar’s or the company office of asset management. And since, transactions are routed in a direct manner; no commissions are paid by the fund house on the cash you invest. Hence, the expense ratio for a Direct Plan is certainly lower than compared to Regular Plan.Regular Plan on the other hand is the traditional kind of plan, wherein you do the investment or transection through a mutual fund distributor oragent orrelationship manager. You are advised and guided by this middleman and he performs all types of the operational tasks for you.Fund house pays commission on the cash you invest to distributors / relationship managers. Because of distribution cost you incur a higher expenses ratio in this regular plan.
What is the foundation behind direct mutual fund?
Well, the idea was to remove the long chain of distributors and agents that always adds to the price structure of the fund houses.In return, the mutual fund houses are going to pass on these cost savings to the investors in the shape of the lower expense ratio.The expense ratio shows you how much as a percentage of the scheme’s corpus the total expenses are. This in turn was believed to improve the returns for the investors.
But have you thought about why do investors hesitate to invest in direct plans?
Strongest reason is the lack of knowledge and awareness and insufficient investor education. Further many prefer a broker to perform all their transactions and render advice. Hence, many are still away from that of mutual fund direct plans. They even don’t know that here are options like direct mutual fund app to make their tasks easy and comfortable. Though many people ignore the small difference of expense ratio between regular and direct plan. In the long run this is the gap that cannot be ignored. So, if you are one of those who have never tried these plans because of lack of awareness or knowledge then you need to think about it.
Thus, having all these things in mind it is time that you try your hand on these direct plans too in mutual funds.