Why have direct schemes of mutual funds gained currency
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Why have direct schemes of mutual funds gained currency

Mutual funds have been a preferred source of investment for those who want to keep away from tracking stock markets and bank on expertise of dedicated research teams.  Transaction costs, taxability of returns and inflation effect are key to choosing the right scheme of mutual funds.

BT Online   
  • April 25, 2016  
  • |  
  • UPDATED   14:33 IST

Mutual funds have been a preferred source of investment for those who want to keep away from tracking stock markets and bank on expertise of dedicated research teams.

Transaction costs, taxability of returns and inflation effect are key to choosing the right scheme of mutual funds.

We take a look at direct mutual fund schemes, which have gained currency among investors.

 

  • Direct mutual fund schemes do not carry costs involved with distributors as investors deal with the Asset Management Companies (AMCs) directly.
  • This reduces the cost of transactions, thereby adding to the returns, compared with returns from the same plan of the scheme.
  • Direct mutual funds have higher NAVs (net asset value) compared with regular plans of the same scheme.
  • One can select the direct mode of mutual fund investment by choosing the option direct in the form of the scheme. Direct plans also have 'Direct' written at the end of the name of the scheme.
  • If you are an existing investor and want to opt for the direct scheme instead of regular scheme, you will have to select the option switch in the form.
  • This will be treated as redemption from regular scheme and fresh investment into new scheme (direct plan). In such cases, exit load will be applicable. Also, taxation factor will also have to be considered since switch is seen as a normal redemption request.
  • Based on this, you will have to pay tax if gains are short term or long term.