ADVERTISEMENT

Regular Mutual Funds vs Direct Mutual Funds: Difference Between The Two

Typically, every mutual fund has two plans – direct and regular. Find out what they are and their differences.

<div class="paragraphs"><p>Source: Kreativkolors on Freepik</p></div>
Source: Kreativkolors on Freepik

Mutual funds were introduced to make it easier for people to start investing in a hassle-free manner. Today, they are a common investing tool for lots of people. A mutual fund is often run by seasoned fund managers who raise funds from a variety of investors to buy financial products like bonds, equities, etc.

Mutual fund plans come in two different schemes. They are regular and direct plans. Additionally, as each mutual fund scheme has a unique benefit, investors need to be aware of these two tactics in order to make a correct investment decision.

In this article, we’ll take a look at the difference between regular and direct mutual funds.

What Is A Regular Mutual Fund?

Mutual fund schemes that are purchased through an intermediary are known as regular plans. Brokers, distributors, and consultants are some examples of these middlemen. When marketing their mutual funds, the intermediaries are paid a specific commission by the fund house. Asset management companies (AMCs) typically recoup this charge through an expense ratio. Regular mutual funds have a somewhat higher payout ratio than direct mutual funds. Investors who lack market expertise or time to track their portfolios are best suited for regular plans.

What Is A Direct Mutual Fund?

SEBI launched the direct scheme in mutual funds in the year 2012. Under the direct mutual fund scheme, the plans are directly offered by the fund house or the AMC. Therefore, there is no participation of agents like distributors or brokers and hence, no need of brokerage. The expense ratio is also lower in a direct mutual fund, meaning the returns are higher. Direct plans append the name of the fund with the word ‘Direct.’ Both online and offline purchasing options are available for these mutual funds.

Difference Between Regular & Direct Mutual Fund

The table below shows a further look at the differences between Regular and Direct mutual funds:

<div class="paragraphs"><p></p></div>

Risk Components Affecting Investing Choices

Depending on your financial requirements, you can swap between several funds in a direct plan. This may enable you to obtain better results. However, it also raises the risk you are exposed to if you are relatively new to investing. All losses resulting from speculative decisions are exclusively the owner's fault.

On the contrary, regular plans have the benefit of having your portfolio managed by experienced fund managers to maximise gains over time. This results in considerably larger chances of obtaining better results. When investing in direct mutual fund plans, it is your responsibility to exercise due research and carefully monitor fund performance to guarantee the best fit for your needs. Luckily, you can find a ton of online resources to help you verify your investment choice today.

To Conclude

Choosing a fund type based on need should be your goal. While a direct mutual fund is the greatest option for a clever investor who has the market knowledge, expertise, and time to determine the finest mutual fund to invest in. The extra expense of hiring an advisor is not worthwhile because it doesn't provide any further benefit.

But, if you require assistance with investment decisions such as understanding the scheme's risk profile, asset allocation, etc., a financial advisor should be consulted.

Happy investing!

This article does not intend to pass on any financial advice and BQ Prime does not endorse any of the funds/schemes mentioned above. Please invest at your own discretion.