Which One to Choose Between Regular and Direct Mutual Funds?
Regular mutual funds involve a middleman or a fund advisor who guides you on mutual fund investment decisions and charges a commission for it.
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Regular mutual funds involve a middleman or a fund advisor who guides you on mutual fund investment decisions and charges a commission for it. In contrast, direct mutual funds allow you to buy mutual fund schemes directly from Asset Management Companies (AMCs) or via Registered Investment Advisors.
Due to no involvement of a middle-man there is no additional commission, making direct mutual fund investments a cost-saving option in terms of mutual fund investments. As of FY26, there are 5.9 crore unique investors in India who have invested in various mutual fund types.
If you are planning a mutual fund investment, learn about the differences between these two options and choose one that suits you.
What are Direct Mutual Funds?
As its name implies, a direct mutual fund lets you invest in mutual funds or schemes directly from the web portal, mobile app, etc, of an AMC or an RIA. As an investor, if you have investment or market-related knowledge, you might find direct plans comfortable.
Here, you must manage your investment decisions on your own without additional assistance.
What Does a Regular Mutual Mean?
A regular mutual fund is a fund scheme which you buy through fund distributors. These distributors are registered with SEBI and the AMFI. It makes them a reliable advisor, especially for investors new to investments.
While you handle all investment-related decisions on your own in direct funds, here the distributor handles most of the investment actions. They do it to ensure a potentially optimal return.
Here lies one of the key differences between direct vs regular mf as the additional commission gets deducted from the NAV, and thus decreases its value. Thus, in the long term, a regular mutual fund typically provides less return compared to direct ones.
Regular vs Direct Mutual Funds: Key Differences
|
Parameters |
Direct Mutual Funds |
Regular Mutual Funds |
|
Mode of Investment |
You can invest directly through the web portal or mobile apps of the AMCs or through an RIA. |
You must contact a registered mutual fund broker, consult with them and invest. |
|
Net Asset Value |
The Net Asset Value of direct plans is higher. It is so as no additional commission is deducted from their expense ratio, increasing return potential. |
The NAV is impacted as additional commission gets added to the expense ratio of a fund, and it is deducted from the NAV. |
|
Return |
Due to a lower expense ratio, in the long term (i.e. 5 years or more), investments in this type of scheme usually result in a higher return. |
Even if the difference between the expense ratios is small, over the years, they accumulate. Thus, it takes away a chunk out of your potential profit. |
|
Control over Investments |
The control of investments is in your hands. Spending on your research and market understanding, you make a pause or continue investments to limit losses. |
Here, distributors have more control over investment decisions. Also, there might be potential bias towards certain schemes if they involve a higher commission. |
Which One Suits You Between a Regular and a Direct Mutual Fund?
You have seen that a direct mutual fund scheme allows you to invest on your own but requires decent market knowledge, monitoring, etc., to make investment decisions. Hence, if you are confident about investing on your own, doing market research, and monitoring the market, you may opt for a direct mutual fund scheme.
Otherwise, if you are a new investor looking for investment guidance and are comfortable with additional expenses, you may opt for a regular scheme.
Conclusion
A direct mutual fund allows you to invest directly via AMCs or RIAs and lets you make investment decisions on your own. With regular schemes, you rely on advisors who make investment decisions in return for a commission.
