Direct and Regular mutual funds are two types of mutual fund schemes offered by an Asset Management Company (AMC). This two types of mutual fund scheme differ from each other only on the cost structure. Everything else from the fund manager, to the portfolio, is the same.
In this article, we are going discuss the difference between these two plans
What is a Direct Mutual Fund?
Mutual funds that are directly purchased directly from an Asset Management Company (AMC) are known as Direct Mutual Funds. There are no agents/brokers/ intermediaries involved in this plan of the Mutual Fund. Here in this direct plan Investors are free from commission fees, which helps to bring down the expense ratio
If we want, we can purchase direct mutual funds from the company website or with the help of third-party platforms like groww, etmoney etc.
What is a Regular Mutual Fund?
Mutual funds that are indirectly purchased from an Asset Management Company (AMC) are known as Regular Mutual Funds; which is through agents/brokers/intermediaries.
Differences between Direct and Regular Mutual Funds
| DIRECT MUTUAL FUND | REGULAR MUTUAL FUND |
| Directly purchased; there are no agents/brokers/intermediaries involved. | Purchased through agents/brokers/intermediaries. |
| Lower expense ratio as no commission is paid to brokers or agents. | Higher expense ratio as the commission is paid to the intermediary. |
| We cannot get any advice or guidance. | We can get guidance and advice from professional intermediaries. |
| Suitable for people who have very good knowledge of the investment market. | Suitable for beginners. |
| Net Asset Value (NAV) and returns are higher as the expense ratio are lower. | Net Asset Value (NAV) and returns are comparatively lower. |
WHICH PLAN TO BUY – DIRECT OR REGULAR MUTUAL FUND?
First of all, we have to understand that there is no difference in the portfolio framework and investment strategy of both direct and regular mutual funds. A ‘Switch’ option is also available for those who wish to change from a regular plan to direct plan.
So, to summarize it can be said that if you are a well versed and well-informed person who is market and investment savvy, I would recommend Direct Mutual Funds. On the other hand, Regular Mutual Funds would be recommended to beginners or investors who have less knowledge about the Mutual funds and its investment.
