If you want to book tickets to travel somewhere, you need to contact an agent for it. The agent is the middleman between you and the travel agency. Also, you could buy your tickets directly via an online website like Yatra.com, Goibibo, etc. by eliminating the middleman and this way, you would save the commission that you would have to pay an agent.
Direct Mutual Funds work exactly in the same manner. Direct funds are those Mutual fund schemes that are directly offered by the mutual fund house (also called AMC). There is no involvement of a third party, distributor, or agent. The investors directly deal with the AMC offering the fund. This way you save on middle-men commissions by investing in Direct Mutual funds.
Let’s take a look at a few terms used above and their meaning -
Fund House: Asset Management Companies (AMCs) also known as Fund houses are firms pooling funds from various individual and institutional investors to invest in various securities. The company invests the funds in capital assets such as stocks, real estate, bonds etc. The asset management companies have professionals called fund managers who manage the investment and the research team selects the potential securities.
Here are a few examples of Fund houses - Axis Asset Management Company Ltd, Aditya Birla Sun Life AMC Limited, Kotak Mutual Fund, HDFC Mutual Fund etc. There are 44 asset management companies (AMCs) or Mutual fund houses operating in India.
Distributor: A Mutual fund distributor is one who helps to buy and sell Mutual funds in India for its investors. The Mutual fund distributors earn commission by bringing in investors to the Mutual fund scheme. They also enhance the knowledge of the investors about the various schemes of different Mutual fund houses.