It has been about five years since mutual fund houses launched direct funds. Direct plans are cheaper than regular plans which have distributor commissions embedded in them. Many fintechs have forayed into the business of selling mutual funds and are providing platforms to invest in direct mutual funds. These platforms typically get themselves registered as advisors with SEBI and sell direct plans. Advisors are allowed to charge fees from investors and sell direct plans. Distributors, on the other hand, don’t charge any fees but earn commissions through the regular plans they sell. Paytm, one of the biggest mobile wallet companies, has also launched a platform, Paytm Money, to enable investments in direct mutual funds. Others include Clearfunds (now acquired by Mobikwik), Paisabazaar.com, Zerodha, ORO wealth, Wishfin. Many of these platforms are currently not charging any fees, or minimal fees, in order to widen their customer base. But that may not be the case forever.
Digital platform for investment
If you are looking for ease of transaction, just log in. You can invest in multiple funds through a single platform. However, if you invest through the website of a fund house, you have to register on each separately.
Besides, the cost of investment is more transparent for investors as there are no embedded charges. The investors know upfront what they are paying. “Clearfunds does not take any kickbacks or hidden brokerage, no invisible annual commission and no distribution fees,” says Kunal Bajaj, head, wealth management, MobiKwik.
Some provide just a transactional platform. Direct plans are generally for D-I-Y investors who have the time and the knowledge to do their own research and choose funds they want to invest in. Some platforms also provide data to enable research. “Accessing our free tools to research across mutual fund schemes from 30+ AMCs, users get comprehensive information about each scheme, including past performance, historical returns, fund manager profiles, ratings, category performance, risk assessments and much more,” says Pravin Jadhav, whole-time director, Paytm Money.
However, if you are new to investing and want to invest in direct plans, it’s better to seek advice. Some platforms such as Oro Wealth and Invezta also provide advice for fees to help you plan your investments. “Orowealth stresses on creating a plan based on market conditions and individual risk profiles, constantly monitors the plan and suggests adequate rebalancing,” says Vijay Kuppa, co-founder, Orowealth.
But if you are someone who needs constant handholding, can’t read markets and panic in times of market volatility, you should go with a distributor who can provide you personalised services. Direct plans are no doubt cheap and over the years result in savings. But this is only when you invest in the right funds as per your risk appetite and asset allocation. It will indeed be a pity if to save a one per cent commission, you end up investing in wrong funds.
“While these platforms offer ease of transaction, investors should refrain from investing impulsively. They should not force-fit their investments, but invest with specific goals and objective. I strongly believe that investors should seek advice before investing in direct options from such platforms,” says Radhika Gupta, CEO, Edelweiss AMC.