Direct Mutual Funds as the name suggests are funds where there is no intermediary like an agent or your bank RM selling you the fund. You directly invest through the fund house or a few websites that offer to invest in Direct Mutual Funds.
Mutual funds charge an expense ratio that is an annual fee for managing your investment. The maximum they charge is 2.5%. This fee is to cover their expenses like admin cost, marketing cost, employee salaries, etc. Before investing in a mutual fund it is essential to check for the expense ratio, the lower the ratio the better it is. Also, one should not only make a decision based on expense ratio, this should be of the other factors while selecting a mutual fund. I will soon be writing on these.
Reasons why investing in direct Mutual Fund is better-
Expense ratio – Direct MF tends to have a lower expense ratio as compared to regular MF. Generally, the difference is of approx 1 percent. For instance, in a regular fund, your fund expense ratio can be 2% while the same in the direct fund would be ~1%.
Parag Parikh Flexi cap fund direct growth plan has an expense ratio of 0.98%. While the regular fund has an expense ratio of 1.89%. So if you invested Rs 1 lakh you would pay Rs 980 for the direct fund or if you invested in a regular fund you would pay Rs 1890 in expense ratio.
This clearly states one of the benefits of investing in the direct mutual fund.
This is also in the case of debt funds and even liquid funds. The spread might differ but direct funds will surely save you some money.
Selling by agents and RM – Now that you know some part of the expense ratio will go to the person who sells you the fund, wouldn’t they sell you the fund which makes them the most money? A higher expense ratio will result in lower net returns.
How can you invest in direct funds?
One option is visiting individual websites of mutual fund houses and investing online. And if you prefer investing offline, visiting an individual mutual fund house is the only option.
Another simple option is investing via. websites like Groww that offer to invest in direct mutual funds for free. I personally use Groww for my mutual fund investments. I highly recommend you this website.
There are several other websites that will offer you investing in direct funds for free one famous name I can recollect is Zerodha.
Save money by investing in direct funds on Groww.
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If you know other websites that offer to invest in direct funds comment and share the names for people to benefit.