Lay investors who lack adequate knowledge about investment in mutual fund products should not rush to invest in direct plans
From January 2013, asset management companies (AMCs) will start introducing direct plans for various schemes. No distributors, agents or brokers will be involved in the sale of direct plans; hence these plans will come with a lower expense ratio.
Capital market regulator SEBI (Securities and Exchange Board of India) had directed AMCs to offer separate direct plans, with distinct NAVs (net asset value), to such investors. Direct plans will have no distribution and commission expenses. As a result these will come with a lower expense ratio. Consequently, they will have a higher NAV and also give slightly higher returns than the regular plans.
However, lay investors who lack adequate knowledge about investment in mutual fund products should not rush to invest in these products. Many investors lack knowledge about identifying the right scheme to invest in. Many investors depend on their agents’ advice to invest in mutual funds.
Investors who plan to invest in direct plans need to their homework well. They need to evaluate their risk appetite and return expectations and then invest in a scheme.
Investors will also have to handle the documentation themselves. If you are investing in an AMC for the first time, you will have to download the application form from the AMC’s website, fill it up and submit it, along with the accompanying documents, to the fund house. The subsequent purchases and redemptions can be done online.