Direct vs Regular Mutual Fund is an important topic since while investing in mutual funds, there are two types – Direct and Regular version for all mutual funds. Direct mutual fund helps you to directly invest via AMC (Asset Management Company) which means you will not pay any advisor fee or intermediary fees, where as in regular mutual fund there are advisor or third party fees that goes out from your pocket as a percentage of your investments, thus reducing your overall returns compared to direct mutual fund.
Let us understand more about Direct vs Regular Mutual Fund Differences in detail.
- Direct vs Regular Mutual Fund Differences
- What is Direct Mutual Fund?
- What is Regular Mutual Fund?
- Advantages of Direct Mutual fund
- Direct vs Regular Mutual Fund – Which is Better?
- Frequently Asked Questions
Direct vs Regular Mutual Fund Differences
Below is the table showing the differences between Direct and Regular Mutual Funds:
|Direct Mutual Fund
|Regular Mutual Fund
|Direct Mutual Fund is the version of a mutual fund that helps you to invest directly via AMC (Asset Management Company) with the help of their website
|Regular Mutual Fund is a version of mutual fund in which you interact with advisor or third party agent to make investments in mutual fund in offline mode
|The expense ratio of direct mutual fund is low, since you deal with AMC directly
|The expense ratio of regular mutual fund is high due to involvement of third party agent
|Returns are high due to low expense ratio and no third party agent involved
|Returns are low due to high expense ratio and involvement of agent that takes portion of your profits
|Advisor / Intermediary
|There is no third party agent or advisor involved in direct mutual fund
|Advisor is present in regular mutual fund, hence his commission will be paid from your investments
|NAV (Net Asset Value)
|The NAV of direct mutual fund grows faster to give you good profits
|NAV of regular mutual fund is less compared to direct mutual fund due to more expense ratio, which results in less returns
|You get to learn about mutual funds when you invest by yourself in direct mutual funds
|Advisor helps you to select the mutual funds based on your goals and your understanding about mutual funds is less
ALSO READ: Types of Mutual Funds in India
What is Direct Mutual Fund?
- Direct mutual fund is a version of mutual fund that you can buy directly from AMC (Asset Management Company)
- You can buy them either in online or offline mode by visiting the AMC nearby office
- These mutual funds have low expense ratio since there is no advisor or third party agent involved
- Hence your overall returns from direct mutual fund will be high due to low cost and no advisor fees
Below is the video to understand how to invest in direct mutual fund with AMC website online
How to Invest in Direct Mutual Fund with AMC via SIP
What is Regular Mutual Fund?
- Regular mutual fund is a version of mutual fund that involves advisor or agent as intermediary that helps you to invest in mutual funds
- Usually if you don’t have idea about online presence of AMC, you would approach an offline financial advisor to invest in mutual funds
- These advisors based on your goals will help you to invest in mutual funds based on the list of funds they are entitled to get commission from
- If you start investing in such mutual funds (regular version), the advisor gets commission from AMC to get the client for them
- These commissions are taken from your investment amount as part of expense ratio, which is high in regular mutual funds, and hence you get lower returns compared to the direct version of same mutual fund
ALSO READ: What is Equity Mutual Funds
Advantages of Direct Mutual fund
Let us now understand some of the advantages of Direct Mutual Funds
Low Expense Ratio
Expense ratio is the fees taken by AMC to pay the salaries of fund manager and the team from your investments.
Direct mutual funds have low expense ratio compared to the regular version of same mutual fund. This is mainly because the advisor or third party agent is not present in direct mutual fund to take commissions from your investments, thus lowering the cost involved in investments.
High Mutual Fund Returns
Direct mutual funds provide higher returns compared to the regular version of same mutual fund, mainly because the expense ratio is low in direct mutual fund. Low expense ratio means the cost involved in the fund investment will be low thus increasing the mutual fund returns.
ALSO READ: Rs. 1000 Mutual Fund Returns Calculation
The NAV of direct mutual fund is high since it grows faster compared to regular version of same mutual fund. Both Direct and Regular mutual funds start with the same NAV value but due to high expense ratio if regular fund, the NAV grows slowly in regular fund compared to direct fund thus providing you low returns in regular fund.
No chance of getting Misled
The advisors of regular mutual funds have the list of mutual funds from where they get commissions and will only suggest you those mutual funds to invest in. They will not see your benefits in selecting the funds, since their focus is on getting commissions while helping you to achieve your goals.
So in such cases you might get misled in regular funds when the advisors want you to select a specific fund that would help achieve your goal in 7 years, even though if there are other direct mutual funds that would help achieve your same goal in 5 years.
So in direct mutual fund, you do your own study and invest, so that there is no chance of getting misled by someone else.
If you are new to mutual funds, you can watch the Mutual Funds for Beginners Playlist I have made for you to understand more about mutual funds.
Direct vs Regular Mutual Fund – Which is Better?
Direct Mutual Fund is better for long term investment if you want to learn more about mutual funds and pay no fees to the advisor. It also provides you high returns compared to regular mutual fund.
It is understandable if you don’t have knowledge about mutual fund to go with regular version of mutual funds, but you can always learn and analyze from several funds that are available to take the decisions by yourself and invest in the Direct versions of your existing mutual funds.
So every mutual fund has two versions – Direct and Regular. Direct Mutual fund helps you to invest in mutual fund directly via AMC website or via their near by office. Some popular brokerage websites also allows you to invest in Direct mutual funds.
Regular mutual funds involves an agent or advisor who suggests the mutual fund to you for investments and involves his commission in it, which increases the expense ratio and lowers the overall returns from the mutual fund.
Some more Reading:
- Best Mutual Funds for 2024
- Retirement Planning Calculator in Excel
- SWP for Monthly Income from Mutual Funds
Frequently Asked Questions
Which is better regular or direct mutual fund?
Direct mutual fund is better since it provides higher returns compared to regular version of same mutual fund, mainly due to it’s low expense ratio because there is no advisor or agent involved in direct mutual fund.
What are the disadvantages of direct mutual funds?
The only disadvantage of direct mutual fund is you need to study and select funds on your own and learn from your mistakes. This should not be considered as the disadvantage as such, since that is the way you learn about other things in life. You’ll pay less expense fees in direct mutual funds in this way compared to regular mutual fund.
Why not to choose regular mutual fund?
Regular mutual fund has high expense ratio because it involves commission of agent or financial advisor who advised you to invest in the fund. Due to this reason you should not choose regular fund but instead invest in the fund’s direct version to get high returns on same investments.
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