A guide to buying direct mutual funds online

When you decide to purchase a house, you have two options: explore the properties yourself or hire a broker. Similarly, when buying mutual funds, you can choose between two options – regular and direct. While regular mutual funds allow you to invest through agents such as mutual fund distributors or brokers, direct mutual funds enable you to bypass such intermediaries and invest yourself. This article explores the meaning of a direct mutual fund and explains how to buy direct mutual funds online in India.

What are direct mutual funds?

Direct mutual funds allow you to invest directly with the Asset Management Company (AMC), eliminating the need for intermediaries. As a result, no commission or brokerage fees are involved, making such plans cost-effective compared to regular plans. Lower investment expenses translate to higher take-home returns.

In a mutual fund direct plan, you can access your funds directly through the AMC’s website or mobile app and have complete control over your investments. The absence of intermediaries lets you take charge of your investment decisions. You can do your research, browse through available options, and choose the one that best meets your needs.

It is important to note that while the Net Asset Values (NAV) of a mutual fund scheme’s regular and direct plan may differ, the underlying portfolio and fund manager remain the same for both options.

How can you buy direct mutual funds online in India?

Mutual fund investments have become more convenient with digitalisation.

Here’s the step-by-step process on how to invest in direct mutual funds online through the AMC.

1. Visit your chosen AMC’s official website.
2. Register with the AMC by entering the required details, such as your Permanent Account Number (PAN), to open an investor account. If you are a first-time investor, complete your Know Your Customer (KYC) formalities.
3. Select the scheme you wish to buy and opt for ‘Direct’ under ‘Plan Type.’
4. Enter the necessary investment details, such as lump sum investment or Systematic Investment Plan (SIP), payment method, and bank details.
5. Use the One-Time Password (OTP) received on your registered mobile number or email address to confirm the transaction.
6. Complete the purchase by making the payment using your preferred method.
7. After successful payment processing, you will receive a notification confirming your investment on your mobile number and email address.

Additionally, here are some other ways to invest in direct mutual funds online:

1. Through online platforms or apps
2. Through RTA (Registrar and Transfer Agents) platforms
3. Through your bank’s net banking facilities or mobile apps
4. Through SEBI-registered advisors

Advantages of buying direct mutual funds online

Here are the advantages of buying direct mutual funds online:

1. Low cost: While there is no difference in the performance of direct and regular mutual funds, purchasing direct funds online helps lower investment costs due to the absence of intermediary fees. Over the long term, this can lead to significant savings.
2. Transparency: You can easily access important information about your scheme, such as the NAV or portfolio performance, with just a few clicks. Real-time updates are available at your fingertips.
3. Speed and efficiency: Whether you are buying a mutual fund or redeeming your investment, you can enjoy quicker transactions from the comfort of your home.
4. Paperless transactions: Digitalisation of processes eliminates the need for physical paperwork, saving both time and effort.
5. Easier management: Most AMCs have a dedicated online dashboard for conducting transactions, such as adjusting Systematic Investment Plans (SIPs) or switching schemes, making portfolio management hassle-free.
6. Awareness: Online investment platforms often have a separate section for investor education, helping you make informed decisions. You also get access to important tools, such as SIP calculators, for better investment planning.

Mistakes to avoid when investing in direct mutual funds

Mistake #1 – Buying a fund based on its past performance

Historical performance does not guarantee future returns. While it is important to review a fund’s past performance, it should not be the sole determinant for your investment. Before making a decision, you must also assess other factors, such as the track record of the fund manager and the expense ratio of the fund.

Mistake #2 – Not creating a well-diversified portfolio

Too much or too little exposure to a particular asset class can lead to suboptimal returns. It is essential to invest across asset classes to balance risk and returns. Even if you choose a particular asset class, you can achieve diversification by investing across its subcategories.

Mistake #3 – Not assessing your risk appetite

Different mutual funds carry different degrees of risk. Knowing your risk appetite is essential for choosing funds that align with your comfort level and long-term goals.

Mistake #4: Not reviewing your portfolio

Markets are dynamic, and your needs and preferences evolve over time. Reviewing your portfolio is essential to ensure your investments remain aligned with your financial goals.

Conclusion

Every investor has unique investment goals and strategies. If you are a Do-It-Yourself (DIY) investor looking to bypass intermediaries like brokers and agents, knowing how to buy mutual funds directly can be helpful. The independent process with the AMC helps you save on brokerage fees and commissions, potentially enhancing your returns over the long term.

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