Direct Vs Regular Mutual Fund

What is a direct mutual fund?

A direct mutual fund is a type of mutual fund in which an investor can directly invest with the mutual fund company without going through any intermediary such as a broker, distributor, or advisor. This means that the investor can directly buy and sell mutual fund units from the mutual fund company at the prevailing NAV without paying any commission or distribution fee to an intermediary.

Direct mutual funds were introduced in India in 2013 and have gained popularity due to their lower expense ratio compared to regular mutual funds. This is because regular mutual funds have an embedded commission or distribution fee that is paid to the intermediary, which is not present in direct mutual funds. As a result, direct mutual funds can offer higher returns to investors due to their lower expenses.

Investing in a direct mutual fund requires the investor to be knowledgeable and informed about the fund and its performance, as there is no intermediary to provide guidance or advice. However, there are many online platforms and tools available that can help investors research and compare different direct mutual funds to make informed investment decisions.

What is a regular mutual fund?

A regular mutual fund is a type of investment fund that pools money from multiple investors to purchase a diversified portfolio of stocks, bonds, or other securities. These funds are managed by professional portfolio managers who use the pooled funds to buy and sell securities on behalf of the investors.

In a regular mutual fund, investors buy shares in the fund, and the price of each share is determined by the net asset value (NAV) of the fund's portfolio of securities. In order to calculate the NAV of a fund, its liabilities are subtracted from its assets, then the result is divided by the number of shares outstanding.

Regular mutual funds are a popular investment option for individual investors because they offer diversification, professional management, and liquidity. They also allow investors to invest in a broad range of securities with relatively small amounts of money.

However, regular mutual funds typically charge fees and expenses, such as management fees, administrative expenses, and marketing expenses, which can affect the overall returns of the fund. It's important to carefully review the prospectus and other materials before investing in a mutual fund to understand the fees and expenses and to ensure that the fund's investment objectives align with your own investment goals. Let’s analyze the difference between direct vs regular mutual funds.

Direct vs. Regular Mutual Fund

Sales and Distribution: Direct mutual funds are sold directly by the mutual fund company to the investor without the involvement of intermediaries such as brokers or distributors. On the other hand, regular mutual funds are sold through intermediaries such as brokers or distributors.

Fees and Expenses: Direct mutual funds have lower expenses and fees compared to regular mutual funds. This is because there are no distribution fees or commissions paid to intermediaries. As a result, direct mutual funds may provide higher returns to investors. Regular mutual funds, on the other hand, have higher fees because of the commissions paid to intermediaries, which can affect the overall returns of the investment.

Investment Minimums: Direct mutual funds may have lower investment minimums compared to regular mutual funds. This makes them more accessible to smaller investors who may not have a lot of money to invest.

Additional Services: Regular mutual funds may offer additional services to investors, such as personalized advice and guidance, which may not be available with direct mutual funds. This can be beneficial for investors who need assistance managing their investments.

Conclusion

Though mutual funds are a safer investment than equities, they still require adequate study and analysis before selecting a fund that is better relevant to your needs because they are exposed to market risks, and choosing the wrong mutual funds could result in lower fund performance.