MF – Direct Plans – Should we go for it?

POSTED BY Kapil ON January 15, 2013 3:11 pm COMMENTS (32)

Hello Experts,

Since, now the “direct” funds are launched, is it advisable to avail the option?

I believe, a gap of 0.5-1% in CAGR definitely makes a greater impact on the corpus if the investment period is long.

I currently invest via FundsIndia.

Awaiting experts opinions.

Thanks, Kapil

32 replies on this article “MF – Direct Plans – Should we go for it?”

  1. Kapil Tiwari says:

    Thanks, Ramesh. I’ll keep your advice in mind.
    Regards, Kapil Tiwari

  2. Kapil Tiwari says:

    Thanks, Ashal!
    Dear Ramesh, I have monthly SIPs in:
    HDFC Equity Fund
    HDFC Top 200
    DSP BR Top 100
    Franklin India Bluechip

    All are through ICICI Direct. I had already placed an SIP order for ICICI Prudential Discovery through ICICI when I heard about this “Direct Plan” route. So, I cancelled my SIP order for ICICI Pru Discovery from ICICI and am going for the same scheme through the “direct” route; this will be my first investment in a direct plan.

    For the other 4 schemes that I mentioned earlier, I plan to move gradually to their direct plans later. For the moment, I am continuing my SIPs in them through ICICI.

    Thanks & Best Regards, Kapil Tiwari

    1. Ramesh says:

      Ok. I think an equivalent fund as of ICICI discovery in any of these 3 AMCs would be a better idea. Try and modulate that way. If you are thinking about direct investing, 3 would be preferable to 4.

  3. Dear kapil, as you want to credit units in to demat account, the name should match with demat records. For this name mismatch thing, only Icici bank & Ipru people can comment that ‘ll they accept or not?



  4. Kapil Tiwari says:

    Another small query, Sir:

    In my ICICI Bank account, my name is: Kapil Deokrishna Tiwari.
    In my ICICI Demat account, as is evident from the “Client Master List”, it is: Kapil Tiwari.

    Hence, in the space on the form, where I have to mention the Unit Holder’s name, I have to write only “Kapil Tiwari” to avoid mismatch with the demat account.

    In the SIP Registration form, where I have to mention my “Name as per Bank Record”, I have to write “Kapil Deokrishna Tiwari”.

    Am I correct, Ashal?

    Thanks/Kapil Tiwari

  5. Kapil Tiwari says:

    Dear Ashal,
    The ICICI Pru MF application form states that “direct debit” is only for IDBI Bank, Indusind, Kotak Mahindra Bank & core banking branches of a few other banks.

    The option mentioned for debiting funds from Axis Bank, HDFC Bank, ICICI Bank, SBI & Dhanalakshmi Bank is “Standing Instruction”. So for ICICI Bank, the option is “Standing Instruction” and not “Direct Debit”. Hence, my earlier query:

    “There are 3 choices given in the MF application form (I am referring to ICICI Pru MF form):
    a) ECS (debit clearing)
    b) Standing Instruction
    c) Direct debit
    For using ICICI Bank, the form has given only the “Standing instruction” choice. So, do I have to fill up an additional form for giving this “Standing instruction” to ICICI Bank? What is the difference between “Standing instruction” and “Direct debit”?”

    I’m sorry to be bothering you but would be grateful if you would clarify.

    Kind Regards, Kapil Tiwari

    1. Ramesh says:

      What MF do you already have, by the way?

  6. Dear Kapil, Here are the answers for your query.

    1. No extra charges for the credit of your units in to your demat account directly from fund house.

    2. In case of IPru MF & ICICI bank, as both belongs to same group, there is only direct debit option. Other 2 options are for non icici bank accounts.

    As this direct investing a grey area as of now, not much clarity is there for all of us. Be it investor or the executives in the customer care centre of MF. 🙂 🙂



  7. Kapil Tiwari says:

    Thanks, Dear FFC and Ashal,
    Two more queries please:

    1) I will be applying for MF units in their “Direct Plan” via SIP route. Since ICICI Bank is already charging annual demat charges, I hope the SIP units will be credited to my demat account free of charge (that is, there will be no additional charges for using my demat account for purchase of MF units through the “Direct Plan” of MF’s).

    2) For the first installment of the SIP, I will give a cheque if necessary. For the subsequent installments, I want the amounts to be directly debited to my ICICI Bank savings account. There are 3 choices given in the MF application form (I am referring to ICICI Pru MF form):
    a) ECS (debit clearing)
    b) Standing Instruction
    c) Direct debit
    For using ICICI Bank, the form has given only the “Standing instruction” choice. So, do I have to fill up an additional form for giving this “Standing instruction” to ICICI Bank? What is the difference between “Standing instruction” and “Direct debit”?

    Thanks and best regards, Kapil Tiwari

  8. Dear Kapil, your understanding for the aplicable charges in I-Direct or fundsindia or direct is right.

    You may keep your units in your demat account. Please check with the AMCs to know the exact way to do it as you ‘ll be purchasing on your own not though your broker (I-Direct).



  9. Kapil Tiwari says:

    Dear Sirs,
    What I gather further is as follows:
    1) ICICI Direct charges 1.5% (or Rs.30 per Rs.1,000 whichever is lower) transaction fee for every purchase, if total investment is below Rs.8 lakhs.
    2) FundsIndia does not charge any transaction fee, hence it is considered a “free platform”.
    However, “trailing commission” will have to be borne even in case investment is made through FundsIndia.
    3) However, if investment is made in a “direct plan”, there is neither a transaction fee nor the “trailing commission”. This makes it the most cost-effective route.

    Have I understood correctly? Please bear with me if you find my query slightly basic since I had not earlier gone into these depths, having always had SIP investments through ICICI Direct….

    My second query is that if I invest in a “direct plan” of a mutual fund, can I opt for purchase of SIP units in demat form and use my existing ICICI Bank demat account for the same? (I will be using the demat account of the bank only and NOT the ICICI Direct trading account.) Hence, I can continue to have my Mutual Fund units at one place only.

    Kind Regards, Kapil Tiwari

    1. Have I understood correctly?

      Yes you are correct.

      Reg. demat format: yes you can.

      See this

  10. Suggestion –

    Keep mixing of direct & indirect plans.
    E.g – Invest directly in ELSS plans as I think there will be higher cost savings in ELSS plans..Max investors invest lumpsum in ELSS schemes so its good idea to visit AMC for one time and save much higher cost of future.

    My observation is that on average investor invests in at least 4-5 funds.Better idea is to keep 3 SIPs direct & 2 SIPs through broker.

    As you are also investing through broker you can get Free Advice from him ..isn’t it?..:-)

  11. Kapil says:

    Thanks everyone for your opinions.

    Would it be possible to have ECS (auto-debit from my bank account) if I go direct? If no, is it with all AMCs?

    I understand that there are certain AMCs like HDFC who provides and online portal. Would it be possible to have ECS with such AMCs?

    Thanks much.

    1. Ramesh says:

      Depends upon the AMC and its collaboration with your online portal Bank. eg, Franklin AMC can get SIPs with most banks but not with HDFC Bank. But there is no issue in getting lumpsum investments from HDFC Bank.

  12. Bunker Guide says:

    Can I ask the AMC to link the direct funds I purchase from them to my online demat trading account? Or even that is not possible?
    If there is no easy platform available to purchase direct funds, I dont think it will succeed much.

    1. I don’t think that is possible. It is a question of making an effort. For many years now I have MFs through direct route. One needs only 2-3 funds. So if one is not willing to put in the effort a distributor is the best choice for them.

      It will not be popular because for most people filling a form and paying a visit to AMC office is too much effort.

    2. Ramesh says:

      The AMC account will remain separate. If you want to link to your demat account, either purchase it through that, or use a common bank account linked with demat and MF.

      The AMC platforms are very easy and reliable (been using them for around 4 years). It is just that, now they have a built-in value addition in terms of money.

      Being successful is very subjective.

  13. Also, here is a write-up comparing FundsIndia investing with Direct investing:



  14. Srikanth (FundsIndia) here.

    My (naturally biased) opinion on this topic is that direct plans are only suitable for a particular set of investors. I write a weekly QA column in Mint and this week I answered a question in this regard. I reproduce that answer below:

    “Following a SEBI mandate to do so, mutual fund companies have started offering a ‘direct-plan’ variant for every scheme that they offer. These schemes are generally named the same as the original scheme but with a ‘-Direct’ suffix. One can invest in these schemes only by approaching the mutual fund company directly (or through their back-office companies such as CAMS or Karvy) and not through any advisor or distributor. The advantage of investing in these funds is that they carry a lower expense ratio (the annual fee, expressed as percentage of the invested money, charged by the mutual fund company to manage investor’s money). Although mutual fund companies have not yet published the difference in expense ratio between regular and direct plans, indications are that for equity funds, the direct plan would be 0.5% and 0.75% cheaper than regular plans. For debt funds it would be between 0.3% and 0.5% and lower still for liquid funds.

    Existing investments can be converted to direct plans by simply doing a switch. Please note, however, that with most mutual fund companies, such transactions will be treated as regular switches – subject to applicable exit loads and taxes.

    Whether or not an investor should invest using direct plans depends on whether he or she needs an advisory support system to manage their investments. An investor needs to be capable of doing three things on their own – one, plan their finances and investments properly to understand how much to invest and for how long, two, understand the universe of investment products to select which are appropriate for their portfolio and, more importantly, which are not, and three, have the time and discipline to track their investments and keep their portfolio up-to-date. These are the keys to having an efficient portfolio, and if an investor can take care of these, they should definitely opt for the lesser cost in the form of direct plans. If not, they would be better off sticking to going through an advisor or a distributor who can help them with these.”

    I don’t think it is a one-size-fits-all situation and that giving a generic advice in this regard would do more harm than good.


  15. Anand says:

    Also fundsindia is a broker. So cant invest in direct plans through fundsindia.
    It would be interesting to check if fundsindia allows investment into DIRECT plans or switching existing plan to DIRECT plans.

    1. Ramesh says:

      And why should they allow that?

      The benefits of Direct Investing come at a cost of convenience. Nothing wrong with that.

      Fundsindia have a business model for earning money, and there is nothing wrong in that.

  16. Bunker Guide says:

    Can such direct plans be purchased from account?

    1. Unlikely. These are direct plans 🙂 meaning you need to get it straight from the AMC

    2. Direct means DIRECT FROM AMC , ICICIDirect is a Broker 🙂

  17. The savings by moving to DIRECT is substantial over longer durations. Check written in Mar 2012 months before SEBI mandated the change.

    Again switching out to new funds would not necessarily reduce the savings because when you move from one fund to another, assuming the initial fund had gone thru SIP, it is prudent to make a direct move into the new scheme in most cases and so the trail commission savings do keep adding up. Given that CAMS and Karvy can consolidate reports for you anytime even if there are multiple schemes across AMCs it is still fine to maintain multiple IDs and Passwords. The gain in future is what you get for the pain of maintaining multiple accounts

    1. Dear Anand,
      Trail commission as I understand is paid from the total AUM as a whole. Earlier (as I learnt from your article) this pool included the direct investors. This does not change right? I have not seen any explicit direct in this regard.

      btw the excel is no longer available.


      1. Pattu – You are right that trail commission is paid from the total AUM as a whole. However now the AUM is split as DIrect vs non-direct. Trail is not applied to DIRECT schemes.

        If you see some schemes like HDFC Top 200 they have started quoting NAV with trail and a NAV without trail (ie DIRECT).

        As on 14-Jan-2013:

        Growth Option 232.9530
        Direct Plan – Growth Option 233.0080

        Direct Plan is already 4.5 paise ahead. And this gap will widen with years. Not sure if all AMCs/schemes have this DIRECT scheme but if SEBI has mandated it should be.

  18. Dear Kapil, the difference ‘ll result in some serious corpus building only in the case where the performance remains in top quartile years after years. Switching after every 2-3 years in search of good funds may not result in desired corpus. Please take note of this. Also add the problem of maintaining 2-3-4 log in IDs & Passwords depending upon with how many AMCs you are dealing with.



  19. In longer term,direct plans will offer good amount of cost saving.
    Just need is of deeper participation of direct investors.Otherwise there won’t be much difference in NAV.

    1. That small difference in NAV amt to about 0.5% expense ratio difference. Over a long time it will make a difference

  20. Yes definitely you should! Use the expense ratio calculator to see the difference it will make

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