Mutual Funds are all the rage in financial investment scenario. There are several mutual fund investment providing companies available in the market through which investment in mutual funds can be accomplished.
Besides mutual fund investment companies, there are individual mutual fund distributors which can facilitate one’s investment requirement of putting their hard earned money in mutual funds. The AMFI (Association of Mutual Funds in India) is the umbrella organisation which looks after every aspect associated with mutual fund investment.
The investment into mutual funds under AMFI is done through mutual fund distributors, either individual or through firm, who are provided ARN (AMFI Registration Number) code.
The investment in mutual funds through ARN code having mutual fund distributors is charged for an entry load of anywhere between 1% to 2.5%. This implies that if a person invests 100 INR in mutual funds, they effectively would get fewer units of NAV of just around 97.5 to 99 only. This was apparent until 2007.
However, post 2007, the watchdog or regulator of market trading, SEBI (Securities and Exchange Board of India), brought in rules and regulations to make distinction between those mutual fund investments which are done directly without a broker and those done through ARN code having distributors.
However, in August 2009, entry loads were eradicated by SEBI altogether. The reason behind this was the fact that the practice of making investors constantly buy and sell for extracting entry loads on every buy and sell was becoming more and more prominent.
Hence, in favour of the investors’ interest, SEBI abolished entry loads in entirety. However, there were some mutual funds which could not be bought directly and has to be invested in only through a broker. This rule also got changes over a period of time. Effective from 1st January 2013, investors have the option of directly indulging in any existing mutual fund scheme.
Now that it is established that investment in mutual funds on a direct basis, let’s find out ways in which mutual funds can be invested in directly. This can be accomplished in three ways. The first way involves the investor to submit their application at the branch office of mutual fund house and while submitting the form, the person has to make sure that it does not have ARN code but instead has Direct option ticked on that application.
The second way of accomplishing direct mutual fund investment is much more convenient and one has to just register on the online portal of the fund house and start investing. The third and final way of direct mutual fund investment involves submission of applications at registrar like Karvy and CAMS of the concerned mutual fund houses while mentioning direct on the application form and not any distributors’ ARN code.
While the pros of investing directly in mutual funds we have not acquainted ourselves with, there is another side to this. Direct investment implies that one does not have any technical input and other market related understanding from others; and the investment is self-dependent in entirety.