Direct Vs Regular Mutual Funds: Difference & Which is Better
There are two ways to invest in mutual funds: Direct and Regular.
In this article, we will compare these two plans and delve deeper into the direct vs regular mutual fund topic.
So, whether you're a first-time investor or an experienced one, read on to learn about the pros and cons of direct and regular mutual funds.
What is a mutual fund?
A mutual fund is a professionally managed investment vehicle that pools money from investors. Mutual funds invest money in various asset classes including stocks or equities, bonds, and other securities.
Explanation of direct and regular plans
Direct mutual fund plan
In this plan, investors buy mutual fund units directly from the fund house, without the involvement of any intermediaries like agents or distributors. One can directly buy units from a mutual fund house’s website or app and through direct mutual fund investment platforms.
Regular mutual fund plan
Under the regular plan, investors buy and sell mutual fund units through intermediaries such as brokers, distributors, and agents. Distributors provide various services to the investors including investment advice and redemption requests. They receive fees from mutual fund houses for providing these services. The costs of these fees are factored into the expense ratio.
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Differences between direct and regular mutual fund plans
| Category | Direct plan | Regular plan | |
| Purchasing Process | Investors buy directly from the mutual fund company without involvement of any intermediaries. | Investors go through intermediaries such as brokers, distributors, or agents to facilitate the purchase and sale of mutual fund units. | |
| Intermediaries | No commissions or distribution fees | Intermediaries earn commissions and distribution fees. | |
| Expense Ratio | Lower expense ratio due to no intermediary commissions. | Higher expense ratio due to intermediary commissions and fees. | |
| Returns & Performance | Absence of intermediary fee could help in generating relatively higher returns | Intermediary fees can impact overall returns. |
Overall, direct mutual funds tend to have relatively lower costs. These are suitable for DIY (Do it Yourself) investors.
However, one gets guidance and assistance from intermediaries under a regular plan. A financial advisor helps investors to make investment decisions based on their needs and goals.
Disclaimer
The investment options and stocks mentioned here are not recommendations. Please go through your own due diligence and conduct thorough research before investing. Investment in the securities market is subject to market risks. Please read the Risk Disclosure documents carefully before investing. Past performance of instruments/securities does not indicate their future performance. Due to the price fluctuation risk and the market risk, there is no guarantee that your personal investment objectives will be achieved.
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