What are Direct Mutual Funds?

Direct Mutual Funds enable investors to purchase mutual funds directly from the Asset Management Company (AMC) or fund house, eliminating the need for an intermediary such as a distributor. This direct approach saves cost, as investors can bypass commissions and fees associated with traditional mutual fund investing.

For instance, if someone wishes to purchase an apple, they may choose to visit their nearest supermarket for this purpose. In this scenario, the supermarket is an intermediary connecting the buyer with the farmer. If one were to bypass this intermediary or the middleman and buy apples directly from the farmer, they could save the commission or markup that would otherwise be paid to the supermarket.

What is a fund house or Asset Management Company (AMC)?

A fund house, also known as an Asset Management Company is an establishment that invests a pool of funds (which are called mutual funds) from various investors into a variety of financial instruments like Stocks, Bonds, Government Securities, and so on. A few examples of fund houses are DSP Mutual Fund, SBI Mutual Fund, Nippon India Mutual Fund, etc. There are about 44 Asset Management Companies in India.

Who is a distributor?

A Mutual Fund distributor is a person or an organization that facilitates the mutual fund transaction between the investor and the AMC. The commissions paid out by AMC are the income for the distributor and are paid by taking a small percentage from the invested value.

For instance, when investing ₹1000 in a fund through a distributor, the AMC deducts ₹10 from the funds and transfers it to the distributor, reducing the initial investment to ₹990. On the other hand, opting to purchase a mutual fund through the direct mode eliminates distributor involvement and commission payments, resulting in an initial investment of ₹1000 and, subsequently, higher returns compared to the regular fund counterpart. To learn more, see Why is the NAV for direct mutual funds higher than regular mutual funds?