Difference Between Direct and Regular Mutual Fund

Mutual fund schemes have two types of plans - direct and regular. Read ahead to know the difference between direct and regular mutual funds.

Direct vs Regular Mutual Fund 

A mutual fund is a program run by shareholders of companies wherein they pool money from investors and invest it in stocks and bonds. Here is a table outlining the major differences between the two types of mutual funds - 

Which is Better Between Direct Vs Regular Mutual Fund?

There are two ways to invest in mutual funds - through a mutual fund agent, or yourself. When an agent or intermediary is involved, it is referred to as a regular plan, and when you do it directly, it is a direct plan. 

The involvement of a third party brings about all the other differences between these two plans. Let us look at them in detail.  

Intermediary

A direct mutual fund plan is bought directly from the Asset Management Company (AMC) without involving an intermediary. Since there is no third party, there is no fee or brokerage involved. 

You can invest in direct mutual funds by visiting an AMC’s website or by visiting the registrar’s office in your area.

Whereas, investment in a regular mutual fund plan happens through a third party, who can be a broker, distributor, or advisor.  They charge a fee or get a commission from the AMC to sell their mutual funds. 

The AMC adds this fee to the expense ratio, which increases the expense ratio of a regular mutual fund plan.

Expense Ratio

The yearly maintenance charge levied by mutual funds for its expenses is referred to as the expense ratio. It is deducted as administrative charges from the returns that an investor gains.

As the fees of the intermediary add to the expense ratio, it increases in the case of a regular mutual fund. In comparison to this, a direct plan has a lower expense ratio.

Returns

There is no way to predict the accurate amount of returns you will get after investing in mutual funds. But there is a potential for higher returns when it comes to direct mutual funds.

As the fees of intermediaries are deducted from the investor's side, a regular plan potentially will give you lower returns.

Net Asset Value

The Net Asset Value (NAV) per unit of a stock is what decides its performance over the course of time. It is indirectly correlated to the expense ratio, thus, regular mutual fund plans have a low NAV.

Direct plans have a lower expense ratio because of the commission money saved. This leads direct funds to have a higher NAV.

Convenience

A direct fund is easier to manage as you make all the choices. It can be complicated to learn it at first, given that you have no one to guide you. But once you have got the hang of it, direct plans are more convenient than regular plans.

As for a regular plan, you have to always get in touch with the intermediaries, which can make it complicated. 

Conclusion

Mutual funds are good long-term investments, and thus you should be careful about what plan you choose to invest in it - direct vs regular mutual funds. Each has its own advantages and disadvantages.

Investing in the direct plan will be more convenient if you like managing your funds all by yourself. Direct plans will also involve a lower expense ratio, which will increase the returns and net asset value of your mutual funds. 

The biggest advantage of choosing a regular plan is that you will have the advice of the broker or the banker, who is the intermediary. There is lesser risk involved and it is a better choice if you are new to mutual funds or do not have much information about it.

Consider getting in touch with a few brokers and also looking up direct funds on the AMC websites before deciding which plan is better for you.