If you like to take control of your investments and go the DIY (do-it-yourself) way, direct mutual funds schemes are made for you. In 2012, SEBI introduced "direct plans" in mutual fund schemes to allow more freedom to investors.
If you are a new investor, you should know that mutual fund schemes are offered in two modes: regular plan and direct plan. These are just two options of any scheme and are managed by the same fund manager, but the difference is that in a regular plan, there is a commission that your mutual fund house has to pay the broker/agent as a distribution fee. In a direct plan, this distribution fee is eliminated.
How can you purchase a direct mutual fund scheme online?
There is more than one way to do it.
Mutual fund house's website
You can buy a direct mutual fund scheme through the Asset Management Company's (AMC) website. For example, if a scheme offered by SBI Mutual Fund appeals to you, you can buy it over their website. Make sure you select the "direct" plan in your application.
Registrar & Transfer Agent (R&TA)
CAMS and Karvy are the leading R&TA in India and allow you to invest in schemes of a variety of mutual fund schemes over their platform. For example, CAMS has a service called myCAMS that allows you to invest through SIP as well as the lumpsum mode in a mutual fund.
Mutual fund Utilities
MFU is an aggregation platform owned collectively by several AMCs and launched by the Association of Mutual Funds of India (AMFI) in 2015. The www.mfuindia.com portal allows you to transact across various mutual fund schemes offered by different fund houses without a distributor.
A CAN (Common Account Number) will be created at the time of registration that will allow you to invest in as many as 12 schemes at one go.
These are online platforms that use complex algorithms to make customized portfolio allocation and investment recommendations based on your risk profile and goals.
These platforms claim to be virtually free with their low costs. It works as a cheap financial planner if you do not wish to go purely DIY way or need some hand-holding.
At the time of writing this article, SEBI has directed stock exchanges, clearing corporations and depositories to set up an infrastructure that will allow investors to directly buy and sell mutual funds from exchanges. However, the facility isn't active yet.
At present, mutual fund purchases from exchange platforms like BSE STAR MF and NMF II can only be made through SEBI-registered RIAs. After the new change is implemented, investors will be able to purchase direct schemes from stock exchanges without RIAs.
KYC for online mutual fund schemes
When you open an account with any AMC or a financial services portal you are required to complete the KYC (Know Your Customer) process as per regulations before you start investing. This is a requirement for both online and offline modes.
However, for the online mode of investment, you can perform KYC verification with the help of Aadhaar-based e-KYC option. In this option, you can give the portal your 12-digit Aadhaar number or choose to give a 16-digit virtual Aadhaar ID. A virtual Aadhaar ID is a temporary code that can be generated on the UIDAI's website to give to agencies if you do not comfortable sharing your Aadhaar details.
An OTP will be sent your Aadhaar linked number that you can enter in the portal to complete KYC verification process.
You will also be asked for PAN details in your application.
Once the KYC verification is successful, you will be allowed to start investing.
However, the limitation with e-KYC is that you can only invest up to Rs 50,000. To make further investments, you will be required to complete the in-person verification (IPV) wherein you will have to submit a KYC form with proof of identity and residence at the nearest service centre.
Some portals even arrange for pick-up facility.
You will also need to verify your bank account and register bank mandate as well. The process will vary based on the portal and the bank's practices.
Selection of schemes
In choosing to invest in direct plans through an aggregating portal is that your options are limited to what is offered by a portal.
Further, you will have to decide for yourself on the right time to exit a scheme. This will require being regularly informed of the movement in your scheme's NAV (Net Asset Value) and market-related occurrences that affect investments. It would require you to some dedicate time on the investment, which you may or may not be able to provide.
It is also important to compare cost structures to arrive at a decision.
Also, devote some time of finding quality research material related to a scheme before picking one. You will have to study past performances.
While the online means is convenient in more than one way, it suits those who are well informed on how mutual funds and markets work.
The article is not a solicitation to buy, sell in securities mentioned in the article. Greynium Information Technologies Pvt Ltd, its subsidiaries, associates and the author do not accept culpability for losses and/or damages arising based on information in this article.
About the author
Olga Robert has been covering equity markets and personal finance for over two years.