The mutual fund plan matters as much as the fund itself. This is why direct mutual fund investments have slowly moved from niche to the mainstream, with retail adoption of direct plans rising to about 26% by February 2025 from 12% in March 2019, as investors increasingly prioritise lower costs, control, and transparency through self-directed investing.
A direct mutual fund plan simply removes the middle layer between the investor and the fund house. Investments happen directly with the AMC or official platforms, changing how costs add up over the years. For long-term investors, this structure improves the outcomes without changing risk or strategy.
Read further to know how to invest in Direct Plans of Mutual Funds, a quick direct vs regular mutual fund comparison, and direct mutual fund investment platforms.
What Is a Direct Mutual Fund Plan?
A direct mutual fund plan allows investors to invest in a mutual fund scheme without involving any distributor or agent. The scheme, portfolio, and fund manager remain the same as the regular plan, but the cost structure changes. Due to the absence of distribution commissions.
Since no commission is paid out, the expense ratio is lower, which results in slightly higher NAV for direct plans. The lower expense ratio compounds into better returns, making direct plans suitable for investors who are confident in researching funds and managing investments independently.
How to Invest in Direct Plans of Mutual Funds
| Step 1: Complete KYC | Complete the KYC using PAN, a one-time requirement for mutual fund investing |
| Step 2: Choose the Platform | Investment can be done directly through AMC websites, RTA platforms like CAMS or KFintech, or online portals such as Groww, Zerodha Coin, etc. |
| Step 3: Register or Log-in | Create an account or log in using PAN and link bank details on the chosen platform |
| Step 4: Select Fund and Plan | Choose the mutual fund scheme and select the Direct Plan option |
| Step 5: Choose Investment Type | Decide between a lump-sum investment or a Systematic Investment Plan (SIP) |
| Step 6: Enter Investment Details | Fill in the investment amount, bank payment details, and nominee information |
| Step 7: Make the Payment | Complete the transaction using UPI or net banking to activate the investment |
Direct vs Regular Mutual Fund: Key Differences
| Aspects | Direct Mutual funds | Regular Mutual Funds |
| Expense Ratio | Lower, since no commission is involved | Higher, as it includes distributor commissions |
| Returns | Slightly higher due to reduced expenses | Slightly lower due to higher costs |
| Ease of Investing | Managed directly by the investor | Assisted by distributors or agents |
| Investor Suitability | Better suited for DIY and cost-conscious investors | Suitable for beginners or hands-off investors |
Why Direct Plans Give Higher Returns
- No Distributor Commission: Direct plans bypass the agents, brokers, and financial advisors, eliminating the need to pay commissions.
- Lower Expense Ratio: Since there are no commissions, the Total Expense Ratio (TER) for direct plans is lower, resulting in higher take-home returns.
- Compounding Effect: Even a small percentage difference in fees, such as 1-2%, adds up dramatically over the years due to compounding, creating a large gap in final returns.
- Higher Net Asset Value (NAV): With lower costs, the per-unit value (NAV) of a direct plan grows faster than its regular counterpart.
Ways to Invest in Direct Mutual Funds
Investment in direct mutual fund plans can be done either through AMC websites or RTA platforms such as CAMS or KFintech.
Investing via AMC Website
Investing through the AMC websites, such as SBI Mutual Fund and HDFC Mutual Fund, involves creating an account directly on the specific fund house whose scheme an investor wishes to purchase. This provides access to detailed fund information, personalised service, and updates directly from the fund provider.
Here, the investor first needs to register themselves, complete their Know Your Customer (KYC) verification, and then select the desired direct fund scheme to invest in, either through a lump sum or a Systematic Investment Plan (SIP). It is suitable for experienced investors who prefer dealing directly with the fund house and only plan to invest with a few specific AMCs.
MF Central & RTAs (CAMS/KFintech)
MF Central is a digital platform developed jointly by the Registrar and Transfer Agents (RTAs), Computer Age Management Services (CAMS), and KFintech to serve as a single place for all mutual fund transactions and service requests across multiple fund houses.
In MF Central, investors can register and access all the mutual fund folios held with different AMCs in one place through the MF Central portal, which allows for new purchases, redemptions, SIP setup, and other service requests.
While the MF Central portal is the modern, integrated approach, investors can still register and transact on the individual platforms run by RTAs, CAMS, and KFintech. These sites manage the records for a majority of the mutual funds in India.
Direct Mutual Fund Platforms Explained
Investors can invest in direct mutual fund plans using three different types of platforms. Let’s discuss them!
- Broker platforms: These platforms offer commission-free direct plans, easy investing, consolidated tracking, and tools such as goal planning and tax features for self-directed, tech-comfortable investors.
- Registrar and Transfer Agents (RTAs): RTAs such as CAMS, KFintech, and MF Central are SEBI-authorised platforms that manage records and transactions across multiple AMCs from a single, reliable interface.
- AMC Websites: This involves direct investment with the fund house, providing scheme-level access and transaction control without distributors or intermediaries.
Taxation of Direct Mutual Funds
Tax on capital gains upon redemption of direct mutual fund plans is based on the fund type, equity, debt, or hybrid, and its holding period.
| Fund Type | Short-term Capital Gains | Long-term Capital Gains |
| Equity Mutual Funds | Flat 20% | 12.5% on gains more than ₹1,25,000 + STT |
| Debt Mutual Funds | Treated as regular income, and tax is charged at applicable slab rate | Gains from debt funds are taxed at applicable tax rate, for both short-term and long-term capital gain |
| Hybrid Mutual Funds | Taxed as equity or debt fund depending on equity holding | Taxed as equity or debt fund depending on equity holding |
Who Should Choose Direct Plans?
- The Savvy Researcher: The investor who enjoys analysing funds, understands financial terms, and can confidently pick investments while matching their goals and risk tolerance.
- The Cost-Conscious Maximiser: The investor who focuses on long-term wealth and understands how lower fees significantly increase returns over time.
- The Digital Native Investor: When the investor is comfortable with using apps, AMC websites, and online portals for transactions and monitoring.
- The Independent Manager: The investor who prefers being in control and managing their own investments without needing an intermediary.
Bottom Line
Direct mutual fund plans reward investors who value cost efficiency, control, and long-term discipline. By cutting distributor commissions, these funds improve returns without changing the fund’s risk or strategy. However, direct plans work best when investors are comfortable researching funds, staying invested during volatility, and managing everything digitally. For informed, long-term investors, the cost advantage compounds meaningfully over time.
FAQ‘s
A direct mutual fund plan is a scheme purchased directly from the fund house or authorised platforms without involving any distributor. It carries a lower expense ratio and a separate NAV compared to the regular plan of the same fund.
Taxation is the same for direct and regular mutual funds. Capital gains tax depends on the fund type, such as equity, debt, or hybrid, and the holding period, not on whether the investment is direct or indirect.
Direct mutual funds offer higher returns over time due to lower costs, but they suit investors who can manage investments independently. Regular plans may work better for investors who prefer guidance and ongoing support.
Beginners can invest in direct mutual funds, but it requires a basic understanding of fund selection and risk. Those unsure about choosing schemes may benefit from starting with regular plans or seeking paid advisory support.
The return difference is not very drastic; it depends on the fund’s expense ratio. However, over long periods, this small gap compounds into a noticeable difference in overall portfolio value.
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