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Difference Between Direct vs Regular Mutual Fund
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!
Table of Contents
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.
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?
Can I switch from a regular to a direct plan?
What is the difference between direct and regular mutual funds?
Other Important Articles about Mutual Funds
Disclaimer
- This is an informative article provided on 'as is' basis for awareness purpose only and not intended as a professional advice. The content of the article is derived from various open sources across the Internet. Digit Life Insurance is not promoting or recommending any aspect in the article or its correctness. Please verify the information and your requirement before taking any decisions.
- All the figures reflected in the article are for illustrative purposes. The premium for Coverage that one buys depends on various factors including customer requirements, eligibility, age, demography, insurance provider, product, coverage amount, term and other factors
- Tax Benefits, if applicable depend on the Tax Regime opted by the individual and the applicable tax provision. Please consult your Tax consultant before making any decision.
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