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What are direct mutual funds?

Written by - Akshatha Sajumon

January 12, 2022 8 minutes

Before we dig deeper into the Direct Mutual Fund and its attributes, it is important to understand what a Mutual Fund is. A Mutual Fund is a form of financial vehicle that involves pooling of money collected from many investors by the fund company to invest in financial securities like stocks, bonds, money market, etc. The returns generated on the investments are shared back to the investors.

Mutual funds are professionally handled by money managers.

Features of Direct Mutual Funds

According to SEBI regulations (Securities and Exchange Board of India), a mutual fund offered by an asset management company (AMC) can consist of two variants – regular funds and direct mutual funds.  This categorisation was brought in by SEBI to prevent the misselling of plans with higher commissions.

  • Direct funds are when an investor invests in a mutual fund without involving a broker/agent/distributor. When a third party is involved in selling a mutual fund and charges commission for the same, it falls under Regular funds.
  • All direct mutual funds are denoted by the words “Direct”  or Direct Plan to indicate to the investor.
  • The direct fund scheme is directly offered by the asset management company (AMC),  the fund house, or app-based investment avenues like Fisdom .
  • Under this scheme, there is no involvement of the third party, agent, or distributor, and there are no commission/brokerage charges involved with each transaction, making the expense ratio low.
  • Investment into direct mutual funds can be made in online or offline mode.

Advantages of direct plans of mutual funds

There are many reasons why investors prefer to invest in direct mutual funds. 

  • No commission/distribution charges: There is no room for an intermediary with direct plans, allowing the investors to invest directly with the fund house or through apps that charge zero commission/fees. This means that no commission fee gets deducted from your investment when each transaction is made. 
  • Easier investing: With the direct plan, you can invest directly in a mutual fund scheme by simply logging into AMC’s website. You can also buy offline from the registrar of mutual funds like CAMS and Karvy or through an app-based platform.You could also buy direct funds from financial platforms like Fisdom , where you not only get to buy funds at the click of a button but also get research-backed recommendations, portfolio rebalancing alerts,  and investment suggestions based on your goals.
  • Higher NAV: In the absence of commission/distribution fees paid out to agents/intermediaries, direct plans have a lower expense ratio than regular plans. This results in a higher Net Asset Value (NAV) for direct plan investors. This implies you get higher value since the low-cost direct plans allow investors to earn up to 1-1.5%, which would otherwise have been claimed as a commission fee with the regular plan, allowing investors to secure higher returns on their investments. 
  • Allows you to manage your investments better: With digitalisation, it has made it easier for investors to have access to many investment documents online. If you follow the right resources, you can become a DIY investor and increase your returns.

Things to be aware of while investing in direct mutual funds

  •  Comparing and analysing investment strategies and mutual fund performances requires your time and attention than with the Regular plan. As a small investor, you might not have the necessary tools to perform such tasks. An investor needs to review and update the investments regularly; otherwise, it will adversely affect the return on investment.
  • When investing in a mutual fund scheme, the things that should be considered are the fund’s age and maturity period, the fund house’s reputation, and financial ratios. Generally, new investors lack such attributes. 

Difference between Direct plans and Regular plans of mutual funds

Parameter Direct PlanRegular Plan
Third-PartyNot presentPresent 
ReturnsHigher (no additional fees to the broker/agent)Lower
Expense RatioLow expense ratio High expense ratio
Net Asset ValueHighLow 
Market Research Should be done on your ownThe advisor does it for you
Investment AdviceNot availableProvided by the advisor

What is an expense ratio? Why is the NAV of the direct plan higher than the regular plan?

Like any business or service which charges you for its services, the mutual fund charges investors with a fund management fee, administrative costs, registrar fee, maintenance fee, entry and exit load, 12-1b distribution fee. This bracket is called the expense ratio, which is disclosed to the investors daily.

The expense ratio states the percentage amount you pay to manage your funds about your investment. For example, if a fund earns Rs10,000, with an expense ratio of 0.5%, this means you are paying Rs. 50 to manage your portfolio. The expense ratio is charged regularly, and a higher expense ratio will eat out your returns due to compounding. Direct plan investors pay a lower expense ratio than the regular plan.

NAV is higher because it provides better returns when compared with the regular plan. There is an inverse relationship between operating expense and net asset value (NAV). AMC incurs expenses to manage your funds. The NAV is disclosed to the investor after deducting such expenses. This means when higher expenses are deducted, it reduces the NAV. Since direct plans have no commission fee and investors directly invest with AMC, this scheme reports a higher NAV after considering all the expenses.

How to switch from a regular to a direct plan? What are the costs involved in doing so?

Mutual funds give users the option to switch from regular to direct funds, and this can be done in two ways; online and offline.

Switch through an offline mode
If you plan to switch your mutual fund plan offline, you need to visit the branch of the fund house you have selected.

  • You will be required to file a ‘Switch/Redemption Form’ with the fund house. 
  • Enter all the information about your scheme; also include your portfolio number and the fund name. Sign it before submitting. 

When the fund house has made the necessary changes to your scheme, they will provide you with an updated statement. This process can also be initiated through your broker/intermediary.

Switch online

If switching schemes offline seems like a hassle to you, you can also do this online just by logging into your fund account, through AMC’s website, or any other online financial platform from which you do the transaction. Different platforms will have different options to select from.

  • Click on the page to buy and sell funds; mainly, this is the transaction page. 
  • Click on the ‘switch’ option to switch from your regular funds to direct funds and follow the steps related to the change; if your platform does not support this, you will need to select the option ‘Redeem Funds.’ 
  • The screen will display the terms and conditions for switching schemes and the details about the scheme you wish to change to.
  • Once you have made the respective changes, it may take up to four business days to take place. 

When regular funds are switched for direct funds, it is termed redemption, attracting tax on capital gains. Investors need to be sure that their scheme does not include exit load as this will reduce the redemption value, which leads to a reduction in the direct fund amount.

How to invest in direct plans of mutual funds online through Fisdom ?

Fisdom is a direct mutual fund platform that supports investment in  4000+ mutual funds from over 50+ AMC’s. In addition to investing, you can also get research-based smart recommendations for investments, portfolio rebalancing, advanced research reports, and carry out Insta switch from your regular plans all in a click. 

Investing in direct mutual funds through the Fisdom App is super easy with the following steps

  1. Download the Fisdom app on your smartphone and select the mutual fund investment type and the sub-category from the list available on the home screen.
  2. The app will then show various time-horizons for investment. Select as per your personal strategy and click on the ‘invest’ button next to the scheme you are interested in.
  3. Choose between ‘Monthly SIP’ or ‘Lump-sum options.
  4. Enter an amount, select the date for monthly investment and make payment.
  5. Enter basic details and bank details on the next screen (if you haven’t given all these details earlier) to complete the process.

You could also redeem your funds with just a single click at any time. Fisdom is registered with SEBI, making it completely safe and secure to perform transactions online and protect its investors’ privacy using the most robust encryption to secure investors’ data.

With the rise in financial awareness and easy access to markets, many individuals have been encouraged to make their own financial decisions. 


The advancement of technology and growth for online investment has empowered investors to buy, sell and/or obtain mutual funds with no human intervention. Direct mutual funds are one such investment opportunity that eliminates the extra costs associated with the regular routes.

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