All you need to know about investing in direct plans of mutual funds

Each mutual fund scheme is offered in two variants: Regular Plan and Direct Plan. The regular plan includes commission or brokerage paid out to the mutual fund distributor. The direct plan does not factor in such costs and these benefi ts directly pass on to the investor. It might sound simple, however, while choosing a direct plan, the investor must know that he needs to carry out the scheme selection on his own, at his own risk; or by hiring services of a Sebi registered investment adviser.

Investment in direct plan
Once the scheme has been identified, investment in the direct plan can be made online as well as offline (by filling up an investment application form).


Online investment
If one is investing online, directly on the fund house website or through a transaction portal, ‘Direct plan’ option must be selected. This will disable the requirement to enter broker code while filling up the online application form. If the investor is hiring the services of any Sebi registered investment adviser, the adviser’s registration number should be provided if asked for.

Offline investment
The investment application form carries a space to write the distributor/broker code. It is important to write ‘Direct’ in that space while filling up the form. Rest of the form is identical to the regular plan.

Switch to direct plan
In case, one wishes to move his existing investments into a direct plan, he needs to give a switch request. This entails redemption from the regular plan and investment into the direct plan. Exit load and capital gain tax, as applicable, may have to be paid with respect to such redemption.

Points to note
NAV of direct plan is higher than regular plan because they save on commission.
While these two are separate plans, the portfolio of the scheme remains the same.


(Content on this page is courtesy Centre for Investment Education and Learning (CIEL). Contributions by Girija Gadre, Arti Bhargava and Labdhi Mehta.)