In this article we cover
1) What is a Regular Plan?
2) What is a Direct Plan?
3) Best Investment Option for Mutual Fund Beginners
4) How to invest through offline mode?
5) How to invest through online mode?
5) How to Start Investing in Mutual Funds?
With technological advancements, even the way we invest in mutual funds has changed. Earlier we could invest in mutual funds only through mutual fund distributors/agents. This is known as regular mutual fund investment.
But now you can also invest in mutual funds directly through a mutual fund house. This is known as direct mutual fund investment.
So, which is the better way to invest in mutual funds? - Regular Plans or Direct Plans? Let’s find out.
This article will also cover how to invest in mutual funds as a beginner.
While investing in a mutual fund scheme you are asked to select between two plans:
- Regular Plan
- Direct Plan
What is a Regular Plan?
When you invest in a mutual fund through a mutual fund distributor, broker or agent, you are investing in regular plans.
In a regular plan, the broker/agent receives ‘commission’ from the fund house. This commission amount is deducted from your fund’s NAV.
The NAV of regular plans is always lower than the NAV of direct plans.
For example: The NAV of Axis Bluechip Fund - Regular Plan - Growth is ₹ 40.26. Whereas the NAV of Axis Bluechip Fund - Direct Plan - Growth is ₹ 44.30
The benefit of a regular plan is that your advisor/agent can monitor your portfolio on your behalf.
Remember, the portfolio of the mutual fund scheme does not change. The same portfolio is available for regular and direct plans.
What is a Direct Plan?
A direct plan is when you invest directly through the fund house. The agent, broker, distributor is not in the picture.
The fund house pays no brokerage to any third party. This reduces the overall cost of investment. Hence the NAV of direct plans is higher than regular plans.
There is also a significant difference in the expense ratio of regular and direct plans.
- The expense ratio of Axis Bluechip Fund - Regular - Growth is 1.77%.
- The expense ratio for Axis Bluechip Fund - Direct - Growth is 0.50%.
A lower expense ratio increases your portfolio returns. But should saving cost be the only goal of your mutual fund investment?
Why Regular Plans are the Best Investment Option for Mutual Fund Beginners
Informed Scheme Selection: Mutual fund beginners do not have the knowledge, time or expertise to select and invest in mutual fund schemes. There are more than 29 types of mutual funds in India. So,
- Which fund should you select?
- Which fund suits your risk tolerance?
- Which fund is in line with your investment objectives?
All these issues are taken care of by a mutual fund advisor. An advisor/agent evaluates your risk profile, your investment objectives etc and then recommends mutual fund schemes.
Portfolio Monitoring: When you invest in regular plans, your fund manager is able to track and monitor your portfolio. He can recommend strategic switching, selling, buying as per the market movements.
Regular plans are perfect for investors who do not have the time to constantly monitor the portfolio.
Goal Based Investing Process: Goal based financial planning is a must before you start investing in mutual funds. Your advisor will segregate your short term and long term goals.
Based on your goals, he will recommend mutual fund types and schemes. This is not done in direct plans.
In direct plans you yourself have to select a fund for investment. The AMC will only provide a platform to invest online. The AMC will offer no goal based advice.
Investing without financial goals can lead to incorrect financial decisions.
Investment Platform: Majority of advisors/brokers provide robust online investment platforms. So investors do not have to go through lengthy paperwork to invest in mutual funds.
The biggest benefit of regular plans is that you can invest in all 44 AMCs with just 1 platform.
In direct plans, investors need to create a separate login and remember id password for each fund house. This is extremely cumbersome for investors. Hence, regular plans are a big boon for investors.
Poor Scheme Selection: There has been a substantial rise in direct platforms in India in the last couple of years. While these platforms run on ‘Zero Commissions’, they have no solid research background.
These direct investment platforms recommend schemes based on the commission received from fund houses. For example: HDFC Small Cap Fund is a top recommended fund among all direct platforms. But the fund only has 3 stocks worth investing!
RankMF - India’s best mutual fund investment platform carries a SELL view on the fund. RankMF is able to do so because it is backed by solid research.
As a mutual fund beginner, the biggest mistake you can make is to be ‘Penny Wise Pound Foolish’.
So as a mutual fund beginner, it is recommended to invest in regular plans.
Now that the regular plan vs direct plan issue is settled, let us look at how to start investing in mutual funds.
There are 2 ways of investing in mutual funds:
- Online investment
- Offline investment
How to Invest in Mutual Funds – Offline Mode?
To invest through offline mode, investors need to:
- Fill in the application form
- Visit nearest Cams/Karvy outlet
- Submit all necessary forms and documents to initiate purchase and redemptions.
How to Invest in Mutual Funds – Offline Mode
With technological advancements, you can invest in mutual funds through various apps and websites. You do not have to visit any office or sign forms. Buying and selling mutual funds can be done in a matter of minutes.
How to Start Investing In Mutual Funds?
Step1: Complete your ‘Know your Customer’ (KYC) requirements. KYC is compulsory for investing in mutual funds. To complete your KYC you need to:
- Fill in your KYC form.
- Submit self-attested pan card, address proof and photograph.
- For address proof you can submit - Aadhaar card, driver’s license, passport, electricity bill etc.
It takes 72 working hours or 3 days to register your KYC. Once your KYC is registered, you can start investing in mutual funds.
There is an easier alternative to do. You can simply open a FREE RankMF account and we’ll take care of everything else!
Step1: A step-by-step guide on how to open a FREE RankMF account.
- Visit www.rankmf.com and click on register.
- Enter your name, email id and mobile number.
- Create a password for your account.
- Enter your Pan details and Date of Birth
- Enter details like - Mothers name, occupation, nationality
- An OTP will be sent to your email id for verification. Enter the OTP correctly.
- Enter your Bank details.
- A small token amount will be deposited to your account by RankMF. Enter the credited amount.
- Select the segment for trading.
- Upload your self-attested documents
You can sign your application digitally in two ways:
- Using Aadhaar based OTP
- You can also record a statement (provided on screen)
- You need to create a digital signature. Click on all signatures present on the form.
- Click on submit. You will receive an OTP on your mobile number. Submit the OTP and your account will be created within 72 hours!
Step2: Select an appropriate fund for investment. You can check RankMF’s top performing mutual funds article for investment ideas. You can also invest in readymade mutual fund baskets as per your risk profile and financial goals.
Step 3: Selecting between lumpsum investment and
Systematic Investment Plan Systematic Investment Plan
It is a mutual fund investment option where you invest a fixed amount at regular intervals. It is perfect for common investors who cannot invest large amounts at one go. SIP helps you invest regularly to achieve long term financial goals.Read More (SIP). Mutual fund beginners should invest via SIPs as they can start with as little as ₹ 500.
If you are a beginner and thinking about whether or not you should invest in mutual funds, then the below table might help:
- By saving just ₹ 500 per month, you will have ₹ 1.16 Lakhs in 10 years!
- In 30 years, you will have a whopping ₹ 17.64 Lakhs!
So, stop waiting and start investing in mutual funds for a brighter tomorrow.
Take the first step towards mutual fund investments with RankMF - India’s best mutual fund investment and research platform. Open a FREE RankMF account today and invest in the best mutual funds in India backed by solid research.
The author is a Certified Financial Planner (CFP) with 5 years experience in Investment Advisory and Financial Planning. Her strength lies in simplifying complex financial concepts with real life stories and analogies. Her goal is to make common retail investors financially smart and independent., RankMF | Last Update 30 March 2021