Difference Between Direct and Regular Mutual Funds Explained

What Are Direct Mutual Funds?

What Are Regular Mutual Funds?

What Are the Differences Between Direct and Regular Mutual Funds?

 

In 2012, SEBI introduced direct plans, enabling experienced investors to purchase funds directly without involving intermediaries. The fund manager manages direct and regular mutual funds, investing in similar assets. However, from the following table, one can observe the significant difference between direct and regular mutual funds.

Comparison Factors

Direct Fund

Regular Fund

Intermediaries’ Involvement

Investors can avail such funds directly from the fund houses and AMCs without involving third parties or intermediaries.

Investors need to involve third parties and use their expert opinions and advice before investing in any fund.

Expense Ratio

TER (Total Expense Ratio) is comparatively lower. It is mainly because the charges of intermediaries hardly apply in such funds.

TER is higher since the charges of brokers, advisors, and other intermediaries will apply to investors.

Returns

The returns are usually higher. The TER is lower without involving third-party charges. The difference between the returns in direct and regular plans can be 0.5%-1%.

Similarly, the returns will be lower since the charges of intermediaries are applicable in the TER. The direct plan generates 1% CAGR if the TER of a regular plan is 0.75% more than a direct plan.

NAV

The TER of any mutual fund is decided from its Net Asset Value (NAV). Since its TER is lower, direct funds have comparatively higher NAV.

The NAV of a regular plan is relatively lower than that of a direct fund. The TER is higher in such funds.

Market Research

The entire market research is to be conducted by the investors. They do not receive any help from anyone in this regard.

In such plans, an investor can receive help from third party advisors and brokers. Based on the information they put forward, an investor makes decisions.

Financial Advice

Investors do not receive any advice or support regarding the financial requirements. They need to do everything by themselves.

Investors can take advice from brokers and advisors. They can enhance their financial decisions with their expert opinions.

Thus, the regular VS direct mutual fund concept shows an array of differences between these two. While both are bottom-line requirements for mutual funds, investors need to acknowledge the significant differences between them simply out of the presence and absence of intermediaries.

Which Is Better Between Direct and Regular Mutual Funds?

Frequently Asked Questions