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The Difference Between Direct and Regular Mutual Funds
Reviewed by: Fibe Research Team
- Published on: 28 Nov 2024
Reviewed by: Fibe Research Team
When considering direct vs regular mutual funds, remember that both allow you to invest in the same scheme. The key difference lies in how you invest. Direct plans let you invest directly with the fund house, often resulting in lower fees.
Regular plans, however, involve intermediaries like brokers or agents. That is why they usually have higher costs. Understanding these differences can help you make better investment choices and manage expenses more effectively.
When comparing direct vs regular mutual funds, the main difference lies in their cost structure, which directly impacts your returns. Here’s how the returns differ between the two types:
These mutual funds may generally provide higher returns due to lower expense ratios.
For instance, if you buy a laptop directly from the manufacturer for ₹40,000, you pay only for the product. This way, you do not have to pay any added intermediary costs.
This is similar to direct mutual funds, where your entire investment is used for the fund’s growth. That results in higher potential returns due to lower fees.
Because of the commissions paid to intermediaries, these mutual funds come with higher Total Expense Ratios (TER). That leads to lower NAV and, in turn, may lead to reduced returns.
For example, buying the same laptop through a distributor may cost you ₹45,000 due to the commission involved.
Similarly, with regular mutual funds, part of your investment is used to cover intermediary fees. That ultimately lowers the returns you may receive compared to direct options.
Both direct and regular mutual funds offer unique benefits depending on your investment preferences. Here’s how the advantages pan out between the two:
| Direct Mutual Funds | Regular Mutual Funds |
|---|---|
| Lower expense ratios help your investment grow more | You are in contact with brokers or financial advisors for guidance, helping you utilise their experience and insight |
| Lower fees lead to higher Net Asset Value (NAV), giving you better value per unit | Advisors recommend funds depending on your preferences |
| No intermediary fees lead to higher returns | Intermediaries monitor and adjust your investments regularly, ensuring your portfolio stays on track |
When choosing between the two types of mutual funds, understanding their key differences is crucial. The table below highlights the differences between direct and regular mutual funds to help you make an informed decision.
| Feature | Direct Mutual Funds | Regular Mutual Funds |
|---|---|---|
| Overview | Investment options offered directly by the Asset Management Company (AMC) | Investment options accessed through intermediaries such as brokers or financial advisors |
| How to Invest | Purchased directly through the fund’s website or the AMC’s platform | Purchased through intermediaries who may offer additional services and guidance |
| Cost Structure | Typically lower due to the absence of intermediary commissions or distribution fees | Higher expense ratio due to commissions paid to intermediaries |
| Investor Involvement | Investors make independent decisions and manage their own investments | Investors receive assistance and guidance from intermediaries for decision-making |
| Return Potential | Potentially higher returns due to lower expenses | Returns may be lower due to the additional fees involved |
| Access to Investment | Direct access to investments via the fund’s official website or at the fund house | Access via intermediaries who offer value-added services such as investment advice and portfolio management |
| Fees and Commissions | No commissions or fees for distribution | Commissions paid to brokers or advisors, which increase the expense ratio |
| Impact on NAV | Higher Net Asset Value (NAV) as a result of lower costs | Lower NAV due to higher costs associated with intermediaries |
| Example Expense Ratio | Around 0.25% – 0.75% of Assets Under Management (AUM) for fund expenses | Around 1% – 2% of AUM for fund expenses, including broker commissions |
Regardless of which type of mutual fund you go for, here are a few things you need to avoid:
Choosing between direct vs regular mutual funds depends on your investment style. Direct mutual funds are cost-effective, with lower expense ratios, making them ideal if you prefer managing your investments on your own. Regular mutual funds offer expert guidance, making them a great option if you need professional advice.
No matter which route you choose to go with, investing in mutual funds gives you a way to access funds when you need them. With the Fibe Loan Against Mutual Funds, you can get up to ₹10 lakhs by using your mutual funds as collateral without withdrawing from your investment. To get started, download the Fibe App and apply now.
Yes, you can make this switch. Just be sure to follow the fund house’s process.
Going for direct mutual funds usually means higher returns since there are no added fees that intermediaries charge. Regular mutual funds, on the other hand, tend to have higher costs because of the commissions to brokers or advisors, which can lower your returns. However, regular funds can enable you to get financial advice.
Yes, it’s easier to track direct mutual funds as you manage them directly on the fund house’s platform. Regular mutual funds require updates from intermediaries, making tracking less direct.
To tell apart direct and regular mutual funds, check the following details:
