What is difference between direct and regular mutual fund
Introduction:
Over the past few years, mutual funds have become a popular investment option, whether for building wealth or fulfilling your dreams like buying a house, early retirement, and more. However, a large number of investors, especially beginners, don’t understand the difference between a regular and a direct mutual fund.
Mutual funds are available in two forms: direct and regular. The difference between regular and direct funds comes from the difference in their cost structure and how you invest in them. While direct plans are more popular among investors, understanding the difference between regular vs direct mutual funds is important. In this article, we will discuss both the terms in detail.
What are Regular Mutual Funds?
When you invest in regular mutual funds, you invest through an intermediate party like a mutual fund investment advisor or a bank’s relationship manager. These intermediaries invest in mutual funds for you at a higher expense ratio as the fund houses have to give commissions to them. Therefore, these plans are more suitable for the investors who need continuous support and guidance from a financial advisor for mutual funds.
What are Direct Mutual Funds?
In direct mutual funds, you can invest in the funds directly with the fund houses.. These plans can be directly purchased from the fund houses, hence, no broker is involved, and no commission needs to be paid, and finally, it results in a lower expense ratio. Investors can directly buy mutual funds from their preferred AMC’s website, offline by visiting their office or by contacting a SEBI Registered Investment Advisor (RIA).
Direct Vs Regular Mutual Funds: Major Differences
Direct and regular plans are two types of mutual funds with the basic difference in how you invest in them. Therefore, it is important to understand the difference between them. Here are some of the key differences between both these fund types:
Net Asset Value (NAV): Fund houses charge certain expenses for managing the fund, which are charged from the NAV of the fund. This charge is also known as expense ratio. As the regular mutual funds have higher expense ratio due to the commission and brokerage involved, the NAV of the funds is generally lower as compared to direct plans.
Convenience: Direct mutual funds are accessible online through the AMC’s website or app. Therefore, these funds can be purchased and managed separately. However, with regular mutual funds, investors must take assistance from a mutual fund investment advisor for every transaction.
Returns: Direct mutual funds offer higher returns as compared to regular funds due to a lower expense ratio. The investors can benefit from the exclusion of commissions, leading to better returns. Whereas, regular plans offer lower returns, as they have a higher expense ratio.
Role of Financial Advisor for Mutual Funds: In direct funds, investors can directly deal with the asset management company, and have the freedom to make their own decisions, without any financial advisor involved. However, in regular funds, financial advisors assist investors in their investment process. They provide you insights based on your investment objectives, and help you choose and invest in the funds.
Benefits of Regular Mutual Funds:
While both, regular and direct funds have their own advantages, there are some benefits that regular mutual funds offer. Here are some of those benefits:
Financial Advisor Assistance: When you are investing in regular funds, a mutual fund financial advisor can help you identify the right funds based on your risk appetite and investment objectives. Therefore, if you are a new investor, you get continuous assistance that can help you grow your wealth.
Regular Monitoring: When you buy direct funds, you have to monitor the performance of your funds on your own. However, with regular funds, a financial advisor monitors and reviews your portfolio, and suggests changes when required.
Goal Based Planning: With regular funds, you get assistance from an advisor who can prepare a customized investment plan that matches your goals. This personalized approach helps you focus on your long-term objectives, and handle the market volatility with ease.
Which is Better: Regular Vs Direct Mutual Funds?
While both the mutual fund options have their own set of advantages, choosing between the two totally depends on your requirements and investment objectives.
Having said that, regular funds are suitable for investors who are new to the market, and need continuous assistance from a financial advisor for mutual funds. These advisors can provide personalized advice, and can help you create a goal-based investment plan. However, this assistance does come at a cost – higher expense ratio and lower returns.
On the other hand, direct funds are perfect for the seasoned investors who are looking for cost efficiency and higher returns. These funds have lower expense ratio, and investors need not spend on commission or brokerage. Direct mutual funds are appealing for the investors who are comfortable or experienced enough to do their own research and take independent decisions.
Therefore, it can be said that, if you are looking for regular support and guidance from professional advisors, like Mentor Wealth, one of India’s best financial advisors, you can choose regular funds. However, if cost-effectiveness is your motto, direct funds are for you.
How to Recognize if a Mutual Fund is Regular or Direct?
Several investors, especially new to the mutual fund scene, get confused between the direct and mutual funds, and end up choosing the wrong plan. To help you overcome this confusion, here are some indicators that can help you differentiate between the two:
Name of the fund: Regular funds have the term “Regular” or “reg” mentioned in the name. Similarly, direct funds have “Direct” or “Dir” mentioned.
Expense Ratio: Generally, the expense ratio of the regular funds is more than the direct funds. You can check the expense ratio, and identify the plan.
Net Asset Value (NAV): By checking the fund’s NAV, you can identify the fund type. Generally, regular mutual fund plans have lower NAV as compared to their counterpart.
Consolidated Account Statement (CAS): CAS can also help you identify between the two. Look for the field “Advisor” in your CAS. If it is a direct fund, you will not see the field, and if it is a regular fund, you will find “ARN” mentioned, followed by a number in this field.
Why Choose Mentor Wealth as Your Financial Advisor?
Choosing between direct and regular mutual funds is just the start. What truly matters is whether your investments are aligned with your life goals, and that’s where Mentor Wealth steps in. As one of the best mutual fund investment advisors in India, we go beyond fund selection. We understand your financial aspirations, whether it’s buying a home, planning for your child’s education, or retiring early. We help you choose the right funds, review your portfolio regularly, minimize tax impact, and rebalance when needed. At Mentor Wealth, your trust is our goal, and your goals shape our advice.
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