Mutual funds are popular investment options that offer a simple and effective way to grow your wealth. When it comes to investing in mutual funds, you often have two choices: direct mutual funds and regular mutual funds. Understanding the differences between these two options is crucial for making informed investment decisions. In this article, we will explore the distinctions between direct and regular mutual funds, so you can choose the right path to meet your financial goals.
There are two versions of mutual funds: direct mutual funds and regular mutual funds.
One of the major differences between these types of mutual funds lies in the expenses incurred. Direct mutual funds are generally more beneficial for investors because they have lower expense ratios compared to investments via regular mutual funds. This is due to the absence of distributor commissions in direct MFs, resulting in more of your money being invested in the assets under management (AUM).
What is a direct mutual fund?
Direct plans are bought from the AMC and no intermediary is involved. Direct mutual fund plans are designed for investors who want to invest in mutual funds without involving intermediaries like distributors or brokers. In a direct plan, investors directly buy mutual fund units from the Asset Management Company (AMC). This results in certain advantages, such as lower expenses and comparatively higher returns than regular plans. Direct plans can be bought either directly with the AMC or online through digital platforms.
There are two ways to invest in direct plans:
You can invest in direct plans online by visiting the AMC's website or by going to the AMC or the registrar’s office in your city.
You can also invest in direct plans through SEBI Registered Investment Advisors (RIAs); RIAs, however, charge a fee to their clients for their advisory services.
Since mutual fund distributors are not involved in direct plan investments, these plans typically have lower expense ratios and can yield higher returns compared to regular plans.
What is a regular mutual fund?
Regular plans are bought through mutual fund distributors. Regular mutual fund plans are the more traditional approach. In these plans, intermediaries like financial advisors or distributors facilitate your investment in mutual funds. They provide assistance, information, and services, but these benefits come at a cost, usually in the form of higher expense ratios because brokerage fees or commissions for the broker are also involved.
Mutual fund distributors provide services like advising investors on which mutual scheme to invest in, submitting investor’s Know Your Client (KYC) documents to the Registrars and Transfer Agents (RTAs) or AMCs, helping investors with the investment process (e.g., submitting application forms and cheques to the RTAs/AMCs), and offering ongoing services such as generating account statements and processing redemption requests.
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