Direct Vs Regular Mutual fund
Very often you may hear terms like Direct Mutual Funds & Regular Mutual Funds. Here is a short read on what they are and what does that imply to investors.
There are two types of plans available to the Mutual Fund investors to invest in Mutual Funds. Direct and Regular Plans.
Direct Mutual funds are when the investor purchases mutual fund units directly from the Asset Management Companies. While in Regular plan the investor can purchase MF units through distributors or an independent advisor.
Few differences between the Direct & Regular Plans
Expenses: The Direct plan have lower expense ratio than the regular plan as there are no distribution expenses such as commission to the distributors that are paid.
NAV: Net Asset Value (NAV) will be different for Direct & Regular plans due to a difference in the expense ratio. Regular plan will have a lower NAV than Direct Plans.
Returns: Lower expenditure and higher NAV means the returns for Direct plans are slightly higher than the regular plan.
Now how does that impact me as an investor? Which one should I choose?
For an investor, purchasing a Mutual Fund through a direct plan may be more beneficial as they don’t have to bear the expenditure on commissions/brokerage. Higher Net asset value and low expense ratio will give high returns compared to regular plans.
Direct Mutual Funds are more suitable for investors who have prior knowledge about Mutual funds and the market. If you know how to choose the right scheme that is best suited for your need, then Direct plan will be the right option. But you may have to spend time to do extensive research and comparisons around the MF schemes before investing.
Under Regular plan, the investors get professional guidance from qualified advisors/distributors. The advisors will guide to choose the right scheme corresponding to the investor’s need. But you as an investor have to give up a certain part of your returns in the form of expense ratio to get the expert advice.
While direct & regular plans are two different routes to invest in mutual fund, there are absolutely no difference in the investment strategy used or the way fund is managed by the Asset management company.
HerAlpha allows customer to invest in Direct Mutual funds.
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