5 min read • Published 24 Jan 25
The Ultimate Guide on How to Invest in Direct Mutual Funds
Table of Contents
Investors can make direct mutual fund investments through various sources. Before getting into the process of how to invest in mutual funds, investors need to know the aspects of direct mutual fund investments.
There should be a detailed analysis of the factors that dictate mutual fund investment and the documentary requirements of various investment methods.
Direct Mutual Funds Meaning
Mutual funds that allow individuals to purchase units directly from the Asset Management Company or fund house without a middleman are known as direct mutual funds.
This direct strategy is cost-effective because investors may avoid commissions. However, multiple parameters should be considered before making direct mutual fund investments.
Important Considerations Before Direct Mutual Fund Investments
Listed below are some important points that investors should consider before choosing a direct mutual fund plan.
- Financial Objectives
Prospective investors must assess their financial health. It helps ensure that investors avoid taking up investment obligations they might be unable to keep. Sudden discontinuation often leads to capital depreciation.
- Risk
Individuals should consider the risks associated with a particular mutual fund investment. Although all mutual funds are susceptible to market fluctuations, some are riskier than others. Ratios like the Sharpe ratio and standard deviation empower investors to take analysed risks. Rational investors tend to prefer reputed mutual fund houses to optimise returns while minimising risks.
- Fund manager experience
Mutual funds invest in various asset classes to diversify investment and minimise risk. The investment strategy of mutual funds is formulated, managed and supervised by fund managers. Funds which have strong and experienced management tend to offer better performance.
- Past performance
Investors should analyse the past performance of a particular mutual fund to understand the degree of volatility faced by the investment instrument in question. It offers great insight into the prospective performance of the mutual fund.
Different Methods of Investment
There are various methods through which individuals can make mutual fund investments. While some of these methods are online, others are offline. The most popular ways of direct mutual fund investments are listed below.
- Investors may make mutual fund investments through branch offices, authorised Investor Service Centres (ISC), or Registrar & Transfer Agents of the different mutual funds.
- Investors can also participate in mutual fund investments online through the different mutual fund websites. There are various aggregator platforms that help compare various mutual fund strategies.
Selection of the Appropriate Method of Investment
Now that the various methods of direct mutual fund investment are clear, it is important to understand which one works best for any individual in question.
- Comfort With Technology
Online mutual fund investments require a very minimum degree of technical comfort. Individuals like senior citizens might find this out of their comfort. Such investors might find traditional investment methods easy.
- Style Of Investment
Investors who dislike intermediaries in their investments tend to prefer online or direct offline contact with mutual fund houses. Although financial intermediaries in the sectors have to register with AMFI, such active investors usually prefer a hands-on investment approach.
Many other parameters might help in making a successful choice of investment method. However, the general rule of thumb is to select a methodology that aligns with individual investment styles and needs.
Documents required before Direct Mutual Fund Investments
Investors require some documents to invest in mutual funds. Mutual fund houses might have their unique documentary requirement. However, in general following documents are a requirement for most fund houses.
- Investors require identity proof. Documents like Aadhaar, PAN and passport can serve as identity proof.
- Prospective unitholders of direct mutual funds might be required to provide address proof through utility bills and lease agreements.
- A detailed KYC is a mandatory requirement of most mutual fund houses. KYC is a one-time process for new mutual fund investors and can be used across all mutual fund investments. It must be linked to a PAN card.
How to invest in mutual funds online?
After investors select the direct mutual fund plan that works for them, they can purchase the mutual fund units online through the AMC website.
- Registration
The investor must open an account with the mutual fund house by submitting an online application in addition to the required documents.
- Selection of MF scheme
Investors must select the mutual fund scheme they wish to invest in. It is the most crucial phase in direct investment. Select “Direct” from the “Plan Type” menu. The investor then chooses the plan and the option they want to invest. There are two options: dividend and growth.
- Dividends are consistent payments made to investors from their mutual fund investments.
- Under the growth plan, the fund’s gains are reinvested in the plan, raising its net asset value.
- Investment details
In this stage of online direct mutual fund investment, investors need to fill in additional details. For instance, investors must choose whether they want to make an investment through a SIP plan or lump sum.
- Verification
The following stage requires investors to confirm the information they entered in the previous phases. To minimise future hassles, investors must confirm that all facts are correct. Some AMCs may require them to authenticate application form submissions using an OTP.
- Payment
Finally, investors complete their direct mutual fund investment process by making the required payment using the method they choose when filling out their information. After completing the process, a confirmation is delivered to the registered phone number or email address.
Conclusion
Direct mutual fund investment helps investors get greater control over their investments and avoid commissions to agents. Although direct mutual funds can be made through both online and offline methods, online mutual fund investments have gained substantial popularity.
The offline route of investment is considered the traditional form of investment and requires the physical submission of forms and documents to the mutual fund house. In comparison, the online mode of investment offers convenience and the opportunity for continuous monitoring of fund performance. An investor must choose the mutual fund and method of investment that aligns with individual goals and temperament.
If you want to diversify into mutual funds, mutual fund apps can help you make prudent investment decisions!
Q: Is SIP better than FD?
A systematic investment plan is a process of making mutual fund investments in predetermined instalments at predetermined intervals over a specific period of time. Whereas fixed deposits are deposits held with banks over a set period of time. Whether an investor should invest his funds in a mutual fund through SIP or make a bank FD depends upon his goals and current financial position.
Q: Can mutual funds go in loss?
Mutual funds hold various asset classes in their portfolio. A mutual fund portfolio includes equities and other capital market securities which are susceptible to market volatility. The performance of a mutual fund is determined by the performance of the securities it invests in. Therefore, if a security is not performing well the mutual fund that holds it would not be able to provide the required returns.
Q: What is the full form of NAV?
Net Asset Value refers to the market value of the assets held by the mutual fund house in question after deducting its liabilities. It is a critical measure of the financial performance and market standing of a mutual fund or investment plan.
Q: What are regular mutual funds?
Investors can purchase units of a mutual fund either directly or through a registered intermediary or middleman. Regular mutual funds refer to mutual fund investments made through registered intermediaries or middlemen. These third-party agents charge commissions or fees against the services provided by them.
Q: Which is better between regular mutual funds and direct mutual funds?
Unlike regular plans, direct plans do not provide mutual fund investments through middlemen. Therefore direct plans give greater autonomy to investors and there is no need to pay commissions to agents. However, traditional investment through intermediaries works better for certain individuals who prefer some guidance and assistance in mutual fund investments.
