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Difference Between Direct vs Regular Mutual Fund

difference between direct and regular mutual funds

Instances are not rare, whereby first-time investors struggle to select between direct and regular funds for investment. It is one of the first decisions you need to make before investing. However, you need to understand the difference between direct and regular mutual funds to select a suitable plan for your investment portfolio.

Are you confused between direct and regular mutual funds in your investment process? Read on!

What are Direct Mutual Funds?

A direct mutual fund refers to a mutual fund that is offered directly by Asset Management Companies or fund houses. It does not require any third parties or intermediaries in this process, such as brokers or distributors of a fund. This means that no commission or brokerage fees are associated with such funds.

Hence, the expense ratio of a mutual fund direct plan is relatively lower. Returns will be automatically higher in such funds because of the lower expense ratio.

What are Regular Mutual Funds?

Regular mutual funds involve intermediaries in the process. Investors take the help of brokers, distributors, or advisors while investing in such funds. They are unsure of their capabilities and try to get expert help in their investment procedure. The fund houses need to pay certain charges to these intermediaries for selling their funds, which they recover from the investors in an expense ratio.

The expense ratio is higher for the investors, thereby generating comparatively lower returns than direct funds. This can be a significant difference between direct and regular mutual funds. Therefore, regular funds are more convenient for new investors as they allow expert opinions.

Key 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.

Aspects	Direct Fund	Regular Fund
Intermediaries Involvement	Investors can avail of 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. This 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 a 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.

Direct or Regular Mutual Funds: Which is Better?

As you can see, identifying the differences between regular and direct mutual funds is vital before making investment decisions. However, an investor might wonder about the right plan to opt for. Consider the below-mentioned points before deciding.

1. Professional Advice

New investors often struggle to make financial decisions because of a lack of market knowledge. In this regard, regular plans can be helpful. These enable investors to receive advice and opinions from market experts, and they can make their own decisions based on these. This way, they can avoid making mistakes by taking professional advice. Such ideas can also help them earn higher returns.

2. Convenience

This factor comes hand-in-hand with professional advice. When comparing direct growth vs regular growth, the latter is more convenient. It enables investors to remain on the back foot, with the intermediaries responsible for making significant decisions. Therefore, the investment process becomes more suitable for investors in regular plans.

3. Expense Ratio

A significant aspect of mutual fund investment rests with its expense ratio. In this context, the direct plans are more favourable as per the list of differences between direct and regular mutual funds. These plans do not require the involvement of intermediaries. As a result, the charges of such intermediaries are not included in the expense ratio.

4. Investment Returns

This factor is again directly connected to the expense ratio. Direct plans offer higher returns, making them preferable for experienced investors. Investors complete the investment procedure without intermediaries, avoiding their charges. As a result, returns are comparatively higher in direct plans.

5. Value-added Services

Intermediaries often provide several value-added services in regular funds. They maintain investment records, offer tax proofs for tax filing, work on redemption facilitations, etc. These are often useful for inexperienced investors who hardly have any financial knowledge. On the other hand, such services are not present in direct plans.

Now that you know the differences between direct and regular mutual funds, choose the one you are comfortable with. While direct plans can be convenient for experienced investors, regular plans support new and inexperienced ones.

Disclaimer: The information provided on this website is for general informational purposes only and should not be construed as financial, investment, or legal advice. While we strive to provide accurate and up-to-date content, we do not guarantee the completeness, reliability, or suitability of the information for your specific needs.

We do not promote or endorse any financial product or service mentioned in these articles. Readers are advised to conduct their own research, consult with financial experts, and make informed decisions based on their unique financial circumstances. Any reliance you place on the information provided here is strictly at your own risk.

FAQs about Direct vs Regular Mutual Funds

How will I know if I have invested in a Direct or Regular Plan?

You will find information regarding this on the account statement of your mutual fund scheme. The word "Direct" will be printed if you have a direct plan.

Can I switch from a regular to a direct plan?

Yes, you can log in to your mutual fund account and opt for the "switch" option on the transaction page. Otherwise, you can visit your nearest fund branch and submit a switching form for this.

What is the difference between direct and regular mutual funds?

Direct mutual funds are purchased directly from the fund house without any intermediaries, resulting in lower expense ratios and higher returns. Regular mutual funds are bought through brokers or distributors, which include commission fees, leading to slightly lower returns.