Direct vs. Regular Mutual Funds: Which is Better for You?
In recent years, there’s been growing interest in direct plans of mutual funds. However, many investors are still unclear about the difference between direct and regular mutual funds, and which option is right for them. If you’re trying to figure this out, you’re in the right place.
The main difference between direct and regular mutual funds is how they’re purchased and their associated costs.
What is a Regular Mutual Fund?
A regular mutual fund is purchased through an intermediary like a financial advisor or bank. Since these intermediaries help sell the funds, they charge a commission, which increases the fund’s expense ratio. If you need ongoing financial advice and support, regular funds can be a better option.
What is a Direct Mutual Fund?
A direct mutual fund allows you to invest directly with the fund house, without any intermediary. Since no commission is paid to a broker, the expense ratio is lower, which can boost your returns over time. This option is best for investors who are comfortable making investment decisions on their own.
Key Differences Between Direct and Regular Mutual Funds:
While both plans invest in the same schemes, there are important differences:
- Net Asset Value (NAV): The expense ratio is deducted from the fund’s NAV. Regular plans have higher expense ratios because of broker commissions, so they typically have a lower NAV compared to direct plans.
- Returns: Due to their lower expense ratio, direct plans offer higher returns than regular plans. Since you don’t pay a distributor commission, your long-term returns can be higher with direct plans.
- Financial Advisor Support: In a direct plan, you’re in charge of making all investment decisions. In contrast, regular plans come with the support of a financial advisor, who can help you choose funds and track your investments.
Benefits of Regular Mutual Funds:
While both types of mutual funds have their advantages, regular mutual funds can be a better fit for specific investors. Here are a few reasons you might prefer regular plans:
- Expert Financial Guidance: A financial advisor can recommend funds that match your risk tolerance and investment goals.
- Regular Monitoring: In a regular plan, your advisor keeps an eye on your portfolio and suggests changes when needed.
- Goal-Based Planning: Your advisor can help create a customized investment strategy that aligns with your financial goals, helping you navigate market ups and downs.
Which is Better: Direct or Regular Mutual Funds?
Both direct and regular plans have pros and cons. Here’s how to decide which one is better for you:
- Choose Regular Funds: if you need ongoing support and guidance from a financial advisor. They can offer personalized advice and help create an investment plan based on your financial goals. Keep in mind that regular funds come with a higher expense ratio due to commissions.
- Choose Direct Funds: if you’re looking for cost efficiency and are comfortable making your own investment decisions. Direct funds offer lower costs and higher returns in the long term, making them ideal for those who prefer to manage their own investments.
How to Tell If a Mutual Fund is Direct or Regular?
Sometimes it can be confusing to know whether you’ve invested in a direct or regular plan. Here’s how you can check:
- Fund Name: Regular plans will have “Regular” or “Reg” in the fund name, while direct plans will have “Direct” or “Dir.”
- Expense Ratio: Regular plans generally have a higher expense ratio.
- NAV: Direct plans usually have a higher NAV than regular plans.
- Consolidated Account Statement (CAS): In your CAS, the “Advisor” field will show an ARN (a registration number for advisors) for regular plans. If there is no ARN, it’s a direct plan.
Final Thoughts:
The choice between direct and regular mutual funds comes down to your needs. If you prefer hands-on support and guidance, a regular mutual fund might be the right choice for you. However, if you’re comfortable managing your investments and want to minimize costs, a direct mutual fund can help you maximize your returns in the long run.
Both options have their own advantages. The key is to choose the one that aligns with your investment strategy and financial goals.
Please note,
The views in the article/blog are personal and that of the author. The idea is to create awareness and for educational purpose and not intended to provide any product recommendations.
