10 Best Direct Mutual Funds In India And Who Should Invest
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Mutual fund houses in India offer both regular and direct plans. The primary difference is that direct mutual funds have a lower expense ratio than the former. These mutual funds do not charge commission fees or deduct any distributor’s fees. As a result, the Net Asset Value (NAV) of a fund’s direct plan is higher and separate from the regular plan’s NAV. For a particular mutual fund, both direct and regular plans have a common portfolio managed by the same fund manager. If you are considering investing in direct mutual funds, here are the 10 best direct mutual funds in India to invest in. Read on!
Table of contents
- What are Direct Mutual Funds and How do they Work?
- Top 10 Direct Mutual Funds to Invest in India
- What are the Differences between Direct and Regular Mutual Fund Plans?
- Types of Best Direct Mutual Funds
- How to Select the Best Direct Mutual Funds for 2022?
- Benefits of Investing in Direct Mutual Funds
- Taxation of Direct Mutual Funds in India
- Tax Implications when Switching from Regular Mutual Fund Plans to Direct Mutual Fund Plans
- What are the Risks Associated with Investing in Direct Mutual Funds?
- Who Should Invest in Top Direct Mutual Funds?
- Final Word
- FAQs on Best Direct Mutual Funds
What are Direct Mutual Funds and How do they Work?
All Asset Management Companies (AMCs) offer two types of mutual fund schemes – regular and direct. As the name suggests, direct mutual fund schemes are offered directly by the company without the involvement of any third-party agent or distributor.
Top 10 Direct Mutual Funds to Invest in India
| S No. | Direct mutual funds | Features |
| Navi Long Term Advantage Fund Direct Growth (ELSS) | -Assets Under Management (AUM): Rs. 69.62 Crore -Net Asset Value (NAV): Rs. 22.626 -5-year returns: 15.41% -Expense ratio: 0.38% | |
| 2. | Axis Bluechip Fund | -Assets Under Management (AUM): Rs. 33,966.75 Crore -Net Asset Value (NAV): Rs. 52.36 -5-year returns: 19.83% -Expense ratio: 0.47% |
| 3. | PPFAS Long Term Equity | -Assets Under Management (AUM): Rs. 17,219.55 Crore -Net Asset Value (NAV): Rs. 53.1438 -5-year returns: 23.79% -Expense ratio: 0.83% |
| 4. | HDFC Small Cap Fund | -Assets Under Management (AUM): Rs. 13,182.11 Crore -Net Asset Value (NAV): Rs. 80.398 -5-year returns: 19.78% -Expense ratio: 0.83% |
| 5. | Franklin India Prima Fund | -Assets Under Management (AUM): Rs. 8083.29 Crore -Net Asset Value (NAV): Rs. 1,644.2771 -5-year returns: 15.40% -Expense ratio: 1.11% |
| 6. | Axis Long Term Equity | -Assets Under Management (AUM): Rs. 34,234.74 Crore -Net Asset Value (NAV): Rs. 82.6397 -5-year returns: 18.54% -Expense ratio: 0.74% |
| 7. | ICICI Prudential Bluechip Fund | -Assets Under Management (AUM): Rs. 31,081.90 Crore -Net Asset Value (NAV): Rs.65.95 -5-year returns: 15.34% -Expense ratio: 1.09% |
| 8. | SBI Magnum MultiCap Fund Direct-Growth | -Assets Under Management (AUM): Rs. 15,464.41 Crores -Net Asset Value (NAV): Rs. 83.2191 -5-year returns: 16.03% -Expense ratio: 0.86% |
| 9. | Aditya Birla Sun Life Tax Relief 96 Direct | -Assets Under Management (AUM): Rs. 14647.00 Crore -Net Asset Value (NAV): Rs. 45.87 -5-year returns: 14.51% -Expense ratio: 0.91% |
| 10. | L&T India Value Fund Direct-Growth | -Assets Under Management (AUM): Rs. 8,009.42 Crore -Net Asset Value (NAV): Rs. 62.897 -5-year returns: 15.35% -Expense ratio: 0.86% |
*This table is for educational purposes only.
What are the Differences between Direct and Regular Mutual Fund Plans?
The primary difference between direct and regular mutual funds is the presence of an intermediary (broker or distributor).
In the case of a regular plan, fund houses need to bear distribution fees in addition to the usual costs and expenses of managing the scheme. Accordingly, they levy a higher expense ratio on investors.
Due to the absence of an intermediary, the expense ratio of direct mutual funds is comparatively less than regular mutual funds. Investors do not have to pay any commission if they opt for direct mutual funds.
Here is a comprehensive list of the major differences between direct and regular plans.
| Direct Mutual Funds | Regular Mutual funds |
| No third-party agent is present | A Third Party Agent (TPA) is present |
| Lower expense ratio (no intermediary fees) | Higher expense ratio |
| Market research has to be done by the investor | Market research will be done by the distributor/broker |
| Higher NAV due to low expense ratio | Lower NAV due to high expense ratio |
Types of Best Direct Mutual Funds
Investors can invest in various types of direct mutual funds from AMCs, such as:
- Equity Mutual Funds: These mutual fund schemes allow one to invest in large-cap, mid-cap and small-cap companies across multiple sectors such as technology, agriculture, energy, etc.
- Debt Mutual Funds: These mutual funds invest in various debt securities such as commercial papers, bonds, treasury bills, etc.
- Hybrid Mutual Funds: Investors who wish to get exposure to multiple asset classes such as debt and equity can choose hybrid mutual funds.
How to Select the Best Direct Mutual Funds for 2022?
- Factor in the investment objective or goal.
- Measure your risk appetite.
- Check the past performance of the fund you choose to invest in.
- Consider the AUM (Assets Under Management) and costs associated with the mutual fund, such as expense ratio, commission fees etc.
- Find out whether the fund is directly or passively managed.
Also Read: Active Mutual Fund Vs Index Mutual Fund: Which One Should You Opt For
Benefits of Investing in Direct Mutual Funds
Here are the benefits of investing in direct mutual funds:
- No third-party involved: Direct mutual fund plans let the investor purchase the units directly from the fund house without any intermediary.
- Low Expense Ratio: There are no distribution fees involved in direct mutual funds because the investor is purchasing the units directly from the AMC. This reduces the expense ratio of a mutual fund significantly.
- High Net Asset Value (NAV): The yearly cost of investing in direct mutual fund schemes is lower than in regular funds. The money that the investor saves by paying a low expense ratio is added to the net asset value of the units. A higher NAV results in greater returns.
- Freedom to Investors: Direct mutual fund schemes offer the freedom to make investments without the participation of an advisor. Investors have the option to make decisions based on their own market research and convenience.
In this regard, you can invest in Navi Long Term Advantage Fund Direct-Growth (ELSS) from Navi. A lock-in period of 3 years allows you to save taxes, and its diversified portfolio curtails risk while providing enough equity exposure. You can invest in Navi Mutual Fund through popular aggregator sites like Groww, Paytm Money, Zerodha etc., to get better returns than other traditional options.
*Mutual Fund investments are subject to market risks, read all scheme related documents carefully.
Also Read: 5 Key Direct Vs Regular Mutual Fund Differences You Must Know
Taxation of Direct Mutual Funds in India
Investors have to pay taxes on the capital gains that they collect from the sale of mutual fund units.
Here is a table to showcase the taxation of equity-oriented and debt-oriented mutual funds:
| Type of Gains | Equity Mutual Funds | Debt Mutual Funds |
| Short-term capital gains | 15% + 4% cess = 15.60% | As per the tax slab of the investor |
| Long-term capital gains** | 10% + 4% cess = 10.40% (if gains exceeds Rs. 1 lakh) | 20% including indexation benefit |
*Please note that the minimum holding period for long-term capital gains is one year for equity-oriented mutual funds and 3 years for debt-oriented mutual funds.
Tax Implications when Switching from Regular Mutual Fund Plans to Direct Mutual Fund Plans
As per income tax rules, switching from regular mutual funds to direct mutual funds is considered a new investment. The capital gains earned owing to the exit from one plan are subject to taxation. As per Section 2(47) of the Income Tax Act, 1961, this is treated as a “redemption and transfer”, and the applicable capital gains tax on the transfer depends on the period of holding of the units, i.e., short-term or long-term.
What are the Risks Associated with Investing in Direct Mutual Funds?
Although direct mutual funds offer better returns and cost less than regular mutual funds, the cost-saving strategy might not be suitable for new investors. Here are some points that one should keep in mind before going for direct mutual funds:
- Portfolio monitoring facilities: New investors might find it hard to keep track of the ever-changing markets. Professional advice from experts can help investors make wise financial decisions. However, direct mutual funds do not offer this facility due to the absence of any intermediary.
- Management and processing: Investing in mutual funds is a time-taking process. One has to assess his/her risk appetite and financial goals, understand the dynamics of the market and select funds on the basis of risk and returns. Regular mutual funds have qualified advisors to provide such services, which, unfortunately, direct plans lack.
- Value-added services: Regular mutual funds offer a few additional services for the convenience of the investors. These may include tax documentation, keeping a record of transactions, assessing investor profiles, etc. On the contrary, direct mutual fund plans do not offer these services.
Who Should Invest in Top Direct Mutual Funds?
- Individuals who prefer investing in mutual funds without the involvement of a distributor or agent might find this option a desirable one. This means an investor who likes to make decisions regarding funds or schemes might prefer this investment.
- Investors well-versed in mutual funds might find it easier to settle for the best direct mutual funds.
Final Word
You can invest in direct mutual funds through different paths such as Asset Management Company, transfer agents such as Karvy, mutual fund transaction portal and Robo-advisers. Make sure to learn everything about the best direct mutual funds so that you can easily fulfil your investment goals.
FAQs on Best Direct Mutual Funds
Ans: Yes, you can apply for a mutual fund direct plan offline by following these steps:
Obtain a physical application form and fill it out precisely.
Submit it at the investor service centre or to its registrar and transfer agent (RTA) or at the branch of the concerned mutual fund.
Ans: A direct plan requires an individual to invest in it directly by doing independent market research. Since an investor applies for this directly, the fund house charges no commission fee on your invested money. Thus, these plans come with a lower expense ratio.
Regular mutual fund plans involve getting recommendations from mutual fund distributors. Consequently, an indirect commission is applicable to the money you invest, which ultimately results in a higher expense ratio.
Ans: Generally, there are four types of risks associated with direct mutual fund investment:
Equity risk: Equity and hybrid funds invest in stocks of various companies whose price keeps fluctuating due to various market-related reasons. Such investments carry the risks associated with the stock market.
Credit risk: Individuals investing in debt funds are exposed to this risk.
Interest rate risk: Investments in debt instruments involves this risk as the bond price changes with their trade.
Inflation risk: Inflation is the general increase in the prices of various goods and services and can interfere with your investment goals.
Ans: Here are the features of direct mutual funds:
Investors do not have to depend on a third party to apply for this mutual fund.
One can invest in this fund in both online and offline modes.
Fund houses do not impose a distributor fee resulting in a lower expense ratio.
One can apply to this fund independently.
Ans: To know about the type of plan you have invested in, you might want to check the account statements of all the mutual fund schemes. You can obtain this statement from the respective AMC, or you can get a consolidated statement from Karvy. If you have invested in a direct plan, your mutual fund scheme name will include the word “Direct”.
Ans: You can purchase direct mutual fund plans both online and offline.
If you wish to follow the offline mode, you need to visit the branch office of the AMC and submit relevant documents such as self-attested identity proof, address proof and the application form. Make sure to choose the ‘direct’ option while filling out the form.
To invest in direct mutual funds online, you can
– Visit the website of the fund house
– Contact a Registrar & Transfer Agent (R&TA)
– Register yourself on a Mutual Fund Utilities (MFU) platform.
Ans: Direct mutual funds let the investors deal directly with the fund house. There is no involvement of agents or brokers, which reduces the management expenses of the fund. This is why direct plans of mutual fund schemes have a higher NAV than regular mutual funds.
Ans: Individuals can hold the units of a direct mutual fund for as long as they want. Some mutual fund schemes have a ‘lock-in period’. It is the minimum time period for which the investor must hold his/her units.
Ans: You can invest in mutual funds as and when you wish. However, it is always advisable to invest when the values of the underlying assets are on the lower side. This will enable you to get more units.
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Disclaimer: Mutual Fund investments are subject to market risks, read all scheme-related documents carefully.
This article has been prepared on the basis of internal data, publicly available information and other sources believed to be reliable. The information contained in this article is for general purposes only and not a complete disclosure of every material fact. It should not be construed as investment advice to any party. The article does not warrant the completeness or accuracy of the information and disclaims all liabilities, losses and damages arising out of the use of this information. Readers shall be fully liable/responsible for any decision taken on the basis of this article.
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