To begin investing in mutual funds, understand if you want to invest online or offline. If your KYC (Know Your Customer) formalities and form are complete and updated, you can start investing online in a mutual fund of your choice. However, if you are not tech-savvy or comfortable with the idea of transacting online, you can choose the offline mutual fund investment route.
Even though online and offline mutual fund investment routes are available for investors, the former is more efficient and cost-effective than the latter. When you invest online in mutual funds, you choose direct plans, and when investing offline, you opt for a regular plan.
Here is the difference between online and offline mutual fund investment:
Direct plans: A direct plan is amutual fund bought directly from the AMC or the mutual fund company, typically from their online website. There is no involvement of a broker or agent, and you are not liable to pay any commissions and brokerage. This means the expense ratio of your mutual fund is lower, and the returns are potentially higher because of the cost-effectiveness of direct plans. Direct plans are more suitable for investors who understand the market and have time to monitor their portfolios.
Regular plans: Regular plans are mutual fund investments that you buy from a broker, agent, or distributor. These intermediaries charge a fee from the fund house for selling their mutual funds. The AMCs recover this cost (intermediary fee) through the expense ratio of the mutual fund. Hence, the expense ratio of regular mutual funds is higher than direct plans. Regular plans are convenient for people who do not have the time or expertise to manage their mutual fund investments.
Online vs. Offline Mutual Fund Investment
| Basis of Difference | Online Mutual Funds | Offline Mutual Funds |
| Presence of third-party | None | Yes, brokers and agents |
| Medium of investment | Invest through the mutual fund company website. You can also invest via websites of registrars of mutual funds or online investment portals like the Tata Capital Moneyfy app. | Visit the specific AMC office to fill the form and submit the cheque. You can also engage with a broker or agent to invest in mutual funds. In some cases, your bank can help you invest in mutual funds. |
| Cost-effective | Highly cost-effective because of no intermediary commission. | More expensive than online mutual funds as you are liable to pay a commission or brokerage to the intermediary. |
| Returns | Potentially better returns than offline mutual funds because of low expense ratio. | Potentially lower returns than online mutual funds because of the high expense ratio. |
| NAV | NAV is higher than regular plans because of no commission. | NAV is lower because of brokerage and commission expenses. |
| Best suited for | People who have strong knowledge about investing in mutual funds. | People who do not understand mutual funds or their investment process. |
Conclusion
Overall, the medium of investment you choose depends on your personal preference and market knowledge. However, investing in a direct mutual fund plan through investment portals, like the Tata Capital Moneyfy app, is a wise strategy. Through the Moneyfy app, you can compare different mutual funds, track and monitor the performance of your plan and rebalance your portfolio whenever required.