The Difference Between Direct and Regular Mutual Fund
Mutual funds are a popular investment option among investors. They pool money from different investors, and the fund manager invests the money in various financial instruments such as stocks, bonds, and money market instruments to generate returns for investors. One question that often arises while investing in mutual funds is whether to invest in direct or regular mutual funds.
What are Direct Mutual Funds?
Direct mutual funds are those mutual funds where an investor can buy units directly from the Asset Management Company (AMC) without involving any intermediaries. As a result, the expense ratio charged for direct mutual funds is lower than that of regular mutual funds. Since there are no intermediaries involved, the commission paid to the intermediaries is saved, and the savings are passed on to the investor. Direct mutual funds have gained popularity among investors, and more and more investors are opting for direct mutual funds.
What are Regular Mutual Funds?
Regular mutual funds are those mutual funds where an investor invests through an intermediary such as a broker, a financial advisor, or a bank. The intermediary helps the investor in choosing the right mutual funds and completes the investment process on behalf of the investor. The intermediary receives a commission for providing these services. The commission paid to the intermediary is added to the expense ratio of the mutual fund, and as a result, the expense ratio charged for regular mutual funds is higher than that of direct mutual funds.
Which One Should You Choose?
The decision to invest in direct or regular mutual funds depends on your investment needs and knowledge about mutual funds. If you have knowledge about mutual funds and can choose the right mutual funds by yourself, you should opt for direct mutual funds as they have a lower expense ratio. However, if you do not have much knowledge about mutual funds and need the help of an intermediary to make investment decisions, you should opt for regular mutual funds.
In conclusion, the difference between direct and regular mutual funds is primarily in the expense ratio charged and the involvement of intermediaries. While direct mutual funds have a lower expense ratio, regular mutual funds provide the services of an intermediary who can help you in choosing the right mutual funds. Ultimately, the choice between direct and regular mutual funds depends on your investment needs and knowledge of mutual funds.
Table difference between direct and regular mutual fund
| Direct Mutual Fund | Regular Mutual Fund | |
|---|---|---|
| Definition | A type of mutual fund where the investors can invest in the scheme directly through the fund house without involving any intermediaries. | A type of mutual fund where the investors invest in the scheme through intermediaries such as agents, brokers, or distributors. |
| Expense Ratio | Lower expense ratio as there are no intermediaries involved. | Higher expense ratio as distributors charge a fee for their services. |
| Net Asset Value (NAV) | The NAV of direct mutual funds is higher than the NAV of regular mutual funds due to lower expenses. | The NAV of regular mutual funds is lower than the NAV of direct mutual funds due to higher expenses. |
| Investment Amount | No minimum investment amount as investors can invest directly through the fund house. | Minimum investment amount may vary for each distributor. |
| Transparency | High level of transparency as investors can track their investments directly through the fund house. | Low level of transparency as investors have to rely on the distributors for updates on their investments. |
| Control | Investors have more control over their investments as they can choose their own funds and manage them. | Investors have less control over their investments as they have to rely on the advice of the distributors. |