• HDFC securities
• 03 Apr 2023
• Knowledge Centre

 

 

Mutual funds are investment vehicles that pool money from multiple investors and invest in a variety of securities such as stocks, bonds, and other assets, managed by a professional fund manager.

You can invest in mutual funds by reaching out to any Asset Management Company (AMC). You can make the investment offline or online. Every AMC offers two types of mutual fund schemes – Direct and Regular Funds. The article gives an introduction to the two funds and lays down a clear difference between Direct and Regular Fund.

About Direct and Regular Funds

As the name suggests, Direct Funds are mutual funds that you can invest in directly. They were introduced by the Securities and Exchange Board of India (SEBI) in 2012. To invest in direct funds, you can visit any AMC branch or their website and purchase the mutual fund units.

On the contrary, you can buy Regular Funds through a broker or mutual fund distributor. You can opt to invest in either type of fund considering your investment requirement.

Direct vs Regular mutual fund: Key Difference

The following are the key difference between regular and direct mutual fund:

Third-party involvement

With direct funds, there is no third-party involvement. The fund name itself indicates it’s a simple, direct investment. This allows you to have complete control over your investment. 

Regular funds have a third-party involvement as you buy the fund units through a stockbroker or distributor. A significant number of investors prefer opting for regular funds as they simplify the investment process.

• Expense ratio

Since direct funds have no third-party involvement, it has a low expense ratio as there are no additional fees or commissions involved. Contrarily, as regular funds involve a third party, you are charged a commission fee. Given this, regular funds have a higher expense ratio.

• Net Asset Value

Net Asset Value (NAV) indicates a fund’s performance. In simple terms, it is the total market value of securities held in your fund. The higher a fund’s NAV, the better it is. Direct funds have a higher NAV due to a low expense ratio, while regular funds in comparison have a lower NAV.

• Returns

Returns are closely associated with your mutual fund’s NAV. Given a higher NAV and low expense ratio, direct funds allow you to earn higher returns. Regular funds earn you reasonable returns. You must consider its high expense ratio also when investing in it.

• Professional guidance

In regular plans, qualified advisors guide you on your investments and help you with higher returns. These advisors and intermediaries keep track of the market and monitor your portfolios regularly. Hence, they can guide and advise you on restructuring your portfolio whenever needed.

However, in a direct plan, you have to rely on your own knowledge. You need to take time out to regularly monitor your portfolio.

In conclusion, both direct mutual funds and regular mutual funds have their advantages and disadvantages, and investors need to carefully consider their investment goals and risk profile before choosing one over the other. Regardless of which option an investor chooses, it’s important to remain focused on long-term investment goals and regularly review and rebalance the portfolio to ensure it remains aligned with those goals.