Direct Mutual Fund: How To Get Started?

More and more investors are becoming aware of mutual funds as an option to grow their savings and wealth. However, it is not yet common knowledge that these funds can be invested differently. One such type of mutual fund is a direct mutual fund, which is quickly growing in popularity among investors. 

Its outstanding benefit helps your money grow while offering savings since you do not need to pay extra fees to middlemen. Read on to learn more about direct mutual fund plans to streamline your investment.

Why Direct Mutual Funds?

A mutual fund is generally collected from numerous investors to invest in various options, such as stocks and companies. This whole fund is managed by fund managers of fund houses, but they rely on intermediaries to reach investors. A direct mutual fund plan eliminates the need for these brokers.

Direct and regular mutual funds are classified based on how you invest in them. Regular mutual funds are brought to you by middlemen who may be identified as brokers or agents. They are motivated to make you invest in mutual funds due to the fees they earn based on your purchase and the fund’s performance. A direct mutual fund investment is a great option to save on these fees.

Steps To Invest  

Here is a step-by-step guide to help you make direct investments in your chosen mutual fund.

• Step 1: Choose Between Online and Offline Modes

You can invest in a direct mutual fund on the online platform of the mutual fund company called an Asset Management Company (AMC). It’s possible to do it also through a Registrar and Transfer Agent (RTA) company. 

• Step 2: Complete the KYC Process

KYC stands for ‘Know Your Customer’. It is a step any financial institution takes to verify the details of a customer. In this process, you are asked for identity and address proof. Generally, your PAN and Aadhaar copies are sufficient. Apart from this, you may be asked to submit other details, such as that of your demat account – if you have one.

• Step 3: Finding the Right Type of Funds for You

Equity, debt and hybrid are different classes of assets in mutual funds. Each one of them has its own risk and return characteristics. Apart from these types, there is a wide variety of mutual funds depending on the focus areas of the investment. Considering your personal investment goals and risk tolerance, you can choose the funds that align with your requirements.

• Step 4: Deciding on the Style You Prefer

Any mutual fund can be invested in two ways. One is through a lump sum investment and the other is in parts through a SIP. A SIP stands for a Systematic Investment Plan, which allows you to invest small amounts regularly. It adds a degree of financial discipline to your future planning and can also help you balance risks better. Choose the route that works for you. 

• Step 5: Tracking the Funds’ Performance

You can monitor the performance of your direct mutual fund investment by following its Net Asset Value (NAV). This is updated daily. Ensure it meets your investment goals and adjust your investment if necessary.

• Step 6: Make Changes as Required 

Such investments are a waiting game and you should try not to get anxious if you see fluctuations as they normally occur. It is important to keep your investment aligned with your goals and stay invested for a long time to grow your funds. 

Benefits Of Investing In Direct Mutual Funds

You can enjoy the benefits of direct mutual funds by eliminating the middleman.

• Lower Costs and Higher Returns

Since there are no intermediaries, you save on commission fees. The money saved on commissions may be added to your investment, which can increase your returns over time.

• Transparency

A direct plan gives direct access to the AMCs and RTAs, which provides better transparency and control over your investments.

• Convenience

If you have chosen to make your direct mutual fund investment online, the process is very simple and easy. You can also manage it from the comfort of your home.

Factors To Consider Before Investing

While you may be tempted to jump right in, understand your needs and appetite for risk. Here’s more on what you should think about before investing in direct funds. 

• Research Your Investment

Dig deep into the details of a mutual fund before choosing it. The past performance of the fund will be available online. The popularity of the AMC can also be estimated and the fund’s strategy is always available in the attached documents of the AMC. Go through all this to better equip yourself to make smart decisions. 

• Aligning Goals

Make sure your investment matches your financial goals. Whether it’s saving for education for your children, buying a house, or your own retirement, choose a fund that helps you achieve your objectives. 

• The Risk Factor

Make sure you understand the risks associated with the mutual fund you choose. A safe practice is investing only those savings that you will not need for the foreseeable future. Diversifying investments is a time-tested measure to reduce risks and most importantly, never invest money you can’t afford to lose.

FAQs On Direct Mutual Funds

Can I purchase direct mutual funds using a Demat account?

Yes, mutual funds can be credited to and held in your demat account. Using a Demat account for mutual funds can help you keep all your investments in one place.

Are direct mutual funds a safe investment choice?

A direct mutual fund is relatively safe, but this depends on many factors, like all investments. There can be fluctuations based on market conditions. The fund type you have opted for and the period are well-known factors that contribute to the safety of your investment. For example, debt funds are generally considered safer than equity funds because they invest in fixed-income securities.