Should NRIs consider Direct Plan for MF investment?

NRIs are permitted to invest in Direct Plans of mutual funds.

February 18, 2019 10:26 IST | India Infoline News Service
Mutual Fund direct plans, as we all know, are the direct investments made by investors in a fund without going through intermediaries. Since no sales and trail commissions are paid on these flows, SEBI has maintained that mutual funds maintain separate NAV records for regular plans and direct plans. Direct plans have costs too. For example, transaction charges, registry fees, audit and legal fees, branding fees and fund management fees have to be paid by the direct plan investor too. However, since the sales and trail commissions are not charged, the 
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Total Expense Ratio (TER) is lower by around 80-100 basis points in case of equity funds and this makes a sizable difference to returns over a period of time.

Can Non Resident Indians (NRIs) invest in Direct Plans of Mutual Funds?
NRIs are permitted to invest in direct plans of mutual funds. Once they open a dedicated bank account in India (NRE or NRO), they can directly liaise with the mutual funds to invest through the direct plans. In a direct plan, the benefit of advisory services for fund selection and fund monitoring is not available. Of course, the NRI is free to opt for the services of a professional advisor and pay the requisite fees directly to them. The investment in direct plan of mutual funds will have to be made through a rupee cheque payable in India. In case you are an NRI based out of US or Canada, you need to first confirm that the mutual fund offers their product to US and Canadian residents. There are quite a few funds that do not accept applications from the residents of the US and Canada due to the requirements of the Foreign Account Tax Compliance Act (FATCA).

Can NRIs invest online in direct plans of MFs since they do not have Aadhar?
Aadhar mapping is still a grey area in India. There has been a Supreme Court ruling which says that Aadhar must be mandatory only in case of Income Tax Filing. However, in the absence of any clear directives, most mutual funds are continuing to insist on Aadhar for online authentication. Obviously, if you try to invest online in a direct mutual fund then there is the need for Aadhar, which is not issued to NRIs. However, there is a simple solution. In case you wish to invest in the direct plan of MFs, you will have to complete the centralized KYC (CKYC) process. This requires providing a set of physical documents like passport, visa, photograph, PAN, overseas address proof, etc. All these can be submitted to an authorized person who can also do the in-person-verification (IPV). Once the CKYC is completed, you can invest online in the direct plans of mutual funds on the respective websites itself.

How can the NRI do in-person-verification (IPV) for CKYC abroad?
NRIs do not have to come to India but can personally present yourself in front of any of the authorized persons in your country of residence. Such authorized person can include authorized officials of overseas branches of commercial banks, notary public, court magistrate, judge, Indian embassy officials, etc. Once you complete the IPV, you can send the requisite forms along with KYC documents to the fund houses or their registrars. In India, CAMS and Karvy are the two principal registrars for mutual funds. Some of the prominent broking houses are also giving video based facility to perform IPV. NRI client can show there KYC document live and video will be captured in system. This will avoid cumbersome process for NRI to visit embassy/bank in their country to perform IPV

Process flow for Direct Plan investing after CKYC is completed
Once your KYC is completed, there are various ways to invest in mutual funds. If you invest through aggregators or distributors then they will be necessarily considered as regular funds only. In case you are planning direct plan investments, then you have the following options available:

•Invest via the AMCs to invest in direct plans of mutual funds. Of course, you will need to make a unique application with each mutual fund AMC and get registered.
•Direct investments can also be made through the websites of the two principal registrars viz. CAMS and Karvy. However, in this case you can only invest in funds serviced by the respective registrars.
•In case you want to avoid the hassle of multiple registrations, you can opt for IIFL MF platform, MF Utilities, which is a free platform to invest in direct plans of mutual funds. They also have empanelled financial advisors where you can seek advice for a fee.

The basic rule in direct Investing is that you opt for it if you are comfortable taking your fund selection and fund monitoring decisions. 

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