Direct vs regular mutual fund - Which is better?

Regular mutual fund plans

In traditional or regular mutual funds, there is an intermediate or broker between you as an investor and the fund house. These brokers are distributers of the mutual fund and they can advise you on plans to invest in. They also help you with the whole investing process by doing your KYC and helping you with the needed forms. For these services, brokers or distributors also charge a fee, which is reflected in the expense ratio.

Direct mutual fund plans

On the other hand, direct mutual fund investments are handled directly by the mutual fund houses aka asset management companies (AMCs). You can purchase a direct plan through AMCs’ websites. Here, add-on services like help with the investment process, advisory etc. are not provided and hence, they don’t come with an additional brokerage fee. 

Regular vs direct plans – The differences

These two options differ in certain aspects which makes them suitable for different investors. Let’s take a look at some of the differences.

• Total expense ratio (TER)

The major difference between a regular and direct mutual fund plan is in their total expense ratio. TER is a fee charged from the mutual fund investors annually and it is collected as a charge for the management of the fund. If you invest in a regular plan where there is a broker present between you and the AMC, a brokerage charge will be also added to the TER.

Of course, in direct plans, since the investment is processed directly, there is no brokerage charge.

Because of this, direct mutual fund plans tend to have a lesser expense ratio when compared to regular funds. This could help investors earn more profit as the offset by TER will be lesser. But that doesn’t mean direct plans are bad. Brokers provide you with valuable advisory services and they also help with the investment process in regular plans. The choice here is completely dependent on your personal preferences.

• Net asset value (NAV)

Net asset value is the trading price of a mutual fund, similar to a stock price of a share. In direct plans, since there are no brokerage charges, NAV will be higher. That gives each unit of your mutual fund investment a higher value.

But at the same time, as said above, regular plans give you valuable services for the fee they charge.

Whatever be your choice between a direct mutual fund and a regular mutual fund investment, mutual funds are undoubtedly a wise choice. Choose between a regular or direct plan according to your preferences and start your investment journey today!