Direct vs Regular Mutual Fund: Which is Better?

When investing in mutual funds, investors face a crucial choice between regular and direct mutual fund plans that can impact their returns by up to 1% annually, due to difference in the total expense ratio. This difference may seem small but can add up to a substantial investment amount over long periods. 

Mutual funds gather funds to invest in stocks and bonds and offer these two investment options with different costs and support. This guide explains the difference between direct and regular mutual funds to help you make an informed decision.

What is a Direct Mutual Fund? 

Direct mutual funds allow you to purchase units directly from the Asset Management Company without any intermediaries. By investing in a direct plan, you can avoid distributors and brokers, eliminating their commission fees. 

This leads to a lower expense ratio, which is the annual fee for management and administration. As a result, choosing direct vs regular mutual funds can be more profitable over time.

Benefits of Direct Mutual Funds

The primary advantage of direct growth vs regular growth plans is the higher returns they generate over time. Direct mutual funds have lower expense ratios as they cut out intermediary commissions, resulting in higher long-term returns. 

This cost advantage can significantly boost your portfolio value. Investors gain control over their decisions, enhancing financial literacy. Investors can directly use AMC websites for a clear investment process, ensuring transparency and minimising conflicts of interest.

What is a Regular Mutual Fund?

Regular and direct mutual funds differ in their distribution approach. Regular mutual funds are purchased through distribution channels such as financial advisors, banks, or investment platforms. These intermediaries receive ongoing payments from the fund house for their services, which is included in the expense ratio. 

Regular mutual funds have been available in India since their introduction, making them a traditional investment choice for many investors. This arrangement has continued, offering a familiar option for those looking to invest.

Benefits of Regular Mutual Funds

Regular plans offer personalised guidance and convenience, with financial advisors helping to select suitable funds for new investors. They manage paperwork, KYC processes, and provide ongoing support, including portfolio reviews. For those lacking time or expertise, the slightly higher expense ratio may be worthwhile for professional management and peace of mind.

Differences Between Direct and Regular Mutual Fund Plans

The primary differences between direct and regular mutual funds centre on costs, returns, and support services:

1. Regular mutual funds involve intermediaries who receive commissions, resulting in higher expense ratios compared to direct funds.

2. Direct mutual funds typically generate higher returns over time due to their lower expense ratios, as no commissions are paid to intermediaries.

To Wrap Up

The direct plan vs regular plan in mutual funds is all about investing expertise and time availability. Consider your comfort level with financial decisions before choosing. However, if you're just stepping into the world of investments, regular mutual funds are an excellent investment for you to grow your wealth without actively managing it. 

And if you need help investing in regular mutual funds, visit the Tata Capital Moneyfy website or download the app to explore fund options and get professional guidance from our team of experts.