Mutual Fund – Direct Plans

In August 2008 , SEBI mandated that Mutual Funds would no more charge the Entry Load of 2% of the amount invested to the Direct Investors

Direct Investors : Are those category of Investors who would not use a broker/agent and would them self walk into a Mutual Fund office or a CAMS/KarvyMF  office and submit the Mutual Fund investment forms or would use the Mutual Fund’s website and invest.

Entry Load: Mutual Funds would have deducted about 2% of the amount being invested and would pay that money as commission to the broker/agent who got that investor in.

In 2010 , this provision was further changed by SEBI and Entry Load was abolished all together

Though all these provision were good for DIRECT investor, there was one problem. The money invested by the Direct Investor and others types of investor were into the same scheme and the problem was , when a broker/agent is involved Entry Load is not the only cost involved , there is also a cost called  Trail Commission which is paid to the broker/agent every year and so on.

So what would happen is ,  costs like Trail Commission and other broker/agent based cost was also being borne by both Direct and non Direct investors.

So to set this anomaly right , SEBI has mandated from Jan 2013 that all Mutual Funds to have a scheme specifically for Direct Investors and this plan would bear none of the Broker/Agent costs.

So In case you have been a Direct Investor and have a SIP currently on, make sure all future installments are being invested in “Direct Plan” automatically ( Mutual Fund are supposed to do that ) .

You can even move your current Direct investments to the “Direct Plan” schemes and you are not supposed to be charged any Exit load .