By Investors in mutual funds have the option to invest in two ways. One option is direct mutual funds, where investors can buy funds directly through the website of a mutual fund company or through an aggregator offering direct funds. The other option is regular mutual funds wherein investors buy funds through a broker or an intermediary (distributor). This is one major difference between regular and direct mutual funds.
Deciding upon which option is better suited for your financial goals depends on various factors. We have compiled the basics you need to know about direct and regular mutual funds to help you decide which is the best option for you.
What are direct mutual funds?
Direct mutual funds are directly offered by fund houses or Asset Management Companies (AMC) to the investors. With no third-party involvement, direct mutual funds are exempted from brokerage charges or the commission that a distributor could get from the AMC. This could help you earn higher returns due to the lower expense paid. These funds can be bought through online or offline mode and are easily identified because of the word ‘Direct’ in the fund’s name.
What are regular mutual funds?
Regular mutual funds are bought through an intermediary. The intermediary charges fees to the fund houses for selling their funds. The fund houses then, in turn, pass this charge on to investors in the form of a slightly higher expense ratio. The total expense paid is slightly higher than that of direct mutual funds.
Advantages of regular mutual funds over direct mutual funds
- Expert guidance: A qualified professional can help you choose mutual funds schemes while taking into consideration your financial goals and risk appetite. They guide your investment journey to help you earn better returns.
- Convenience: Investing in mutual funds requires time-consuming research and might be tedious for many. An intermediary analyses these funds and thus saves the investor’s time and efforts. Also, they provide other value-added services that help investors to stay abreast with the fluctuations in the market.
- Constant portfolio monitoring: Markets are dynamic, and this calls for constant monitoring of your investments. Intermediaries that monitor market behaviour are quick on their feet to suggest that you sell or swap funds that are not performing.
Advantages of direct mutual funds over regular mutual funds
- Higher returns: Investing in direct plans eliminates brokerage charges. This reduces the total expenses spent on a fund. Thus, you are likely to gain higher returns on your investment.
- You’re in charge of your investment: With no intermediary involvement, you are in complete control of your investment.
Direct mutual funds vs regular mutual funds – Which is better?
The choice of direct vs regular mutual funds entirely depends on your investment profile. If you are a beginner or don’t have much knowledge about investment, you could go for regular mutual funds. However, if you’re well-versed with market trends and understand the mutual fund universe, direct plans might be the best option for such experienced investors.
