You save money on the 'entry load', a deduction made by the mutual fund company from your invested amount and used to pay the agent's commission.
If you choose not to use the services of an agent, you can save anything between 2 to 6 per cent of your invested amount.
For instance, if you want to invest Rs 10,000, earlier (three months ago when you could not buy mutual funds directly from the company but only through its agent), the fund house would have deducted around Rs 200 (for the agent) and made a net investment of Rs 9,800 on your behalf.
But now, if you choose to invest directly from the mutual fund house, Rs 10,000 will be invested. There are three ways to buy a mutual fund, directly.
1: Head to the nearest office of the mutual fund house.
Visit the office, fill up the form, submit the documents and voila, you have saved 2 per cent. Remember that your bank and the mutual fund house, even if they belong to the same group, are separate entities.
For instance, if you want to invest in a mutual fund scheme from SBI Mutual Funds, you cannot go to the nearest branch of the State Bank of India. In this case, the State Bank of India will act as an agent for SBI Mutual Funds, and you will not save on the entry load.
Instead, head to the nearest SBI Mutual Fund office.
2. Drop in at a collection centre or investor service office.
Applications submitted to the collection centre or investor service centre will not attract entry load. If the fund house does not have an office, collection centre or investor service office in the city, you could courier your form. If the cost of the courier is the same as the entry load, it would make sense to hire an agent and save yourself the trouble.
3: Buy them online.
If you are Internet-savvy, online shopping is the way to go. Buy the mutual fund of your choice by visiting the web site of that particular fund house. Fill up your personal and investment details as asked in the application form and quote your Permanent Account Number (PAN) (this is mandatory).
You can pay through your bank account debit card, if that fund house has tied up with your bank. In case your bank does not feature in list of tie-ups, don't worry.
There's always Plan B:Choose to make the payment through a cheque or demand draft. In this case, you need to courier the same.
If you opt for a Systematic Investment Plan (SIP), choose the Electronic Clearance Scheme (ECS). Some fund houses do not offer SIP investments, online. In this case, you will need to visit a branch to do the same.
Top documents
When buying mutual funds you need to submit these:
- Application form
- Cheque, demand draft (depending on mode of purchase)
- Copy of PAN card attested, by an officer at the mutual fund office, your financial advisor, your bank manager, any gazetted officer/notary or judicial authority
Agent or direct purchase: what's best for me?
"This move is controversial but progressive. It will empower retail investors. But it makes sense to those who do not want advice and service from their agents," says Dhirendra Kumar, CEO of Value Research.
This means that if you are a savvy investor and do not need the advice of an agent to know which fund is best for you, the direct route is a blessing. However, if you need that little bit of help, it's always better to choose an agent and invest in the right fund.
There's no point trying to save a few rupees if you end up making a bad investment. Also remember, that an agent will take care of all the paper work and will also be around if you need help with redeeming your investment. So, choose the route that works the best for you.
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