By- Deepti Verma
Professional fund management through mutual funds has become the preferred investment choice for people who want to avoid stock and bond selection responsibilities. Within this category, investors can choose between direct mutual funds and regular mutual funds. People who want to achieve the highest possible returns over extended periods should choose direct mutual funds. But how do you actually invest in them, and what should you know before starting? Let’s explore.
What Are Direct Mutual Funds?
The fund house operates direct mutual funds as investment schemes which do not need brokers or distributors for their distribution. Investors who choose direct plans avoid paying commission fees because there are no middlemen involved. The expense ratio of direct plans remains lower than regular plans because investors avoid distribution fees. The avoided distribution fee leads to higher net returns for investors when they maintain their investments for extended periods.
The direct plan provides investors with a higher net return than the regular plan because it omits distribution fees which produce identical gross returns. The small difference between direct and regular plans will grow into a substantial amount when you maintain your investment for several years.
Steps to Invest in Direct Mutual Funds
- Identify Your Investment Goals
Your investment purpose should be your first consideration before starting to invest. Your investment purpose determines whether you need wealth accumulation or retirement savings or money for your child’s education or immediate financial requirements. Your investment goals will determine which type of fund you should choose between equity funds and debt funds and hybrid funds.
- Select the Right Fund
Investors should evaluate mutual funds through performance history and fund manager background and expense ratio and portfolio structure. The SEBI-registered platforms and financial portals provide tools which enable users to evaluate multiple investment alternatives. The fund risk level should match your personal comfort with investment risk.
- Choose the Direct Option
When you choose a mutual fund, you need to pick the Direct Plan option from the application screen. Fund houses present their investment options through two distinct plans which include Direct and Regular. Double check the options before you move forward with your application.
- Complete KYC Formalities
SEBI requires all investors to complete their Know Your Customer (KYC) verification process before starting investments. The investment process requires PAN card and Aadhaar documents and proof of address verification. Fund houses enable e-KYC which enables users to finish the process through their website in under five minutes.
- Invest Through the AMC’s Website or App
You can access the official website of the Asset Management Company (AMC) through their website or mobile application. You need to register with your information and finish the KYC verification if needed before choosing your fund and investment method between lump sum and SIP.
- Track and Review Regularly
After making your investment you should monitor your portfolio on a regular basis. Check your fund’s performance at least annually to verify it meets your investment targets. Mutual fund success depends on patient long-term investment strategies because constant portfolio changes should be avoided.
Why Direct Plans Make Sense
The main benefit of direct mutual funds stems from their ability to generate higher returns because they have lower operating expenses. The small annual difference between direct and regular plans will transform into a major investment gain when investors hold their funds for 10 to 15 years. Direct plans empower investors to handle their investment choices independently since they do not need to depend on intermediaries for guidance.
Final Thoughts
The process of investing in direct mutual funds requires basic research and portfolio monitoring from investors. Direct plans offer an efficient path to wealth growth for investors who feel confident about their investment choices. Investors who need guidance should maintain regular plans with an advisor because direct plans provide self-directed investment options.
For disciplined investors who want to cut costs and maximize returns, direct mutual funds provide a clear and rewarding path to financial growth.
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