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Direct Vs Regular Mutual Fund
Direct Vs Regular Mutual Fund
Direct and Regular Mutual Fund are different ways of investing in mutual funds and both of them have different characteristics which can affect your returns. Before understanding the concept and difference between direct and regular mutual fund, let's understand what mutual funds are.
What is a Mutual Fund?
A Mutual Fund is basically a trust that collects investments from investors and makes a pool of money that is managed by a professional fund manager. And in return, the fund house charges a small fee for the investment. These are ideal for people who don’t want to invest a large amount and don’t have much knowledge or time for research. Now let’s understand what is direct mutual funds are.
What is Direct Mutual Fund?
Direct Mutual Fund Investment are mutual funds that are offered directly by the AMC or fund institution. There are no third-party intermediaries - brokers or distributors - involved. Neither commissions nor brokerage fees are involved since there are no third parties involved. Due to this, direct mutual fund investment have a lower expense ratio.
As a result of the decreased expense ratio, the return is higher. A mutual fund's direct plan is easily recognizable because the word "direct" is prefixed to the fund's name. There are both online and offline options for purchasing direct mutual fund.
Regular Mutual Funds
Regular mutual funds are plans that are bought through an intermediary. These intermediaries can be distributors, advisors, or brokers. They charge a nominal fee as a commission from the fund house for selling their mutual fund.
This cost is often recovered by AMCs through their expense ratio. Direct mutual funds have lower expense ratios than regular mutual funds. Thus, direct plans produce higher returns. If you do not have the time to manage your portfolio or do not have an understanding of the market, regular plans may be a good option for you.
As a result, a regular plan is significantly more convenient for investors who are unfamiliar with the market.
Direct Vs Regular Mutual Fund
Which is Better Between Direct or Regular Mutual Fund?
1). Basis: Mutual fund plans Direct and Regular mutual fund are simply two variations of the same scheme. Both funds are managed by the same fund manager, and both invest in the same stocks and bonds.
2). Expense Ratio: The main difference between direct and regular mutual fundis is that the AMC pays commission to the broker as transaction fees or distribution expenditures for regular funds which are transferred to the expense ratio, whereas no such commission is levied for direct funds.
This is because there is no intermediary, and all associated costs are reduced when you invest through a direct plan. This results in lower expense ratios for direct mutual fund plans.
3). Third Party: In direct mutual funds, there is no involvement of a third party resulting in less cost whereas regular third party known as brokers or distributors are involved which leads to additional cost while purchasing.
4). Performance: Investing isn't only about NAV. Other criteria include whether you have adequate information to choose the proper fund for you and whether you have the knowledge to manage your portfolio. If not, it is better to hire an advisor who will do all of this for you at a very low cost for better performance of your funds.
On the other hand, if you have enough experience and knowledge to pick the right mutual funds then you can go for direct mutual funds as a lower expense ratio will then result in more returns for you. Get to know about the differences between ULIPs and Mutual funds.
Conclusion
Though mutual funds are a safer form of investment than equities still it requires proper research and analysis before choosing a fund that is more suitable to your needs as they are subject to market risks and choosing wrong mutual funds could lead to a lower performance of your funds.
