Mutual funds (MFs) are an avenue to invest in equity markets. These are investment schemes created by pooling money from a large number of investors. The MFs, managed by professionals, invest money pooled from investors into various companies, sectors and asset classes. There are two main types of MFs in India — direct plan and regular plan. Here’s the difference between these two types of plans in mutual funds.
Regular Vs Direct Mutual Funds
Direct Mutual Funds: Direct mutual funds are like going to a shop and buying something directly from the shopkeeper. In this case, the shopkeeper is the AMC (asset management company). When you invest in direct mutual funds, you buy them directly from the company that manages the mutual fund (AMC). There is no middleman involved, like an agent or a broker. Because of this, the expenses, or charges you pay are usually lower in direct mutual funds. This means you get to keep more of the money you make from your investments.
Regular Mutual Funds: Regular mutual funds, on the other hand, are like buying something from a shop through a salesperson. In this case, the salesperson is the agent or broker who helps you invest in the mutual fund. They give you important information, help with paperwork, and take care of things for you. But here’s the catch – because there’s a middleman involved; the mutual fund company pays them a commission. This commission is usually a part of the expense ratio. As a result, the returns you get from regular mutual funds might be a little lower compared to direct mutual funds.
When selecting an online platform for purchasing mutual funds, it is important to consider factors such as user-friendliness, comprehensive information availability, and minimal fees. An example of such a platform is the Bajaj Finserv mutual fund investment platform. With its user-friendly interface and zero commission charges, this platform enables you to effortlessly invest in mutual funds and efficiently manage your investment portfolio.
How They Are Sold
Direct MF Plan: Directly by the asset management company
Regular MF Plan: Through intermediaries, such as brokers and distributors
Expense Ratio
Direct MF Plan: Comparatively Lower
Regular MF Plan: Higher
Returns
Direct MF Plan: Comparatively higher
Regular MF Plan: Lower than Direct
Service
Direct MF Plan: Self-service
Regular MF Plan: Assisted
Expense ratio: It is the fee that a mutual fund charges to cover its operating expenses. The expense ratio is expressed as a percentage of the fund’s assets. Direct funds typically have lower expense ratios than regular funds. This is because there are no intermediaries or brokers involved in the sale of direct funds, so there is no commission to be paid.
Returns: The returns of a mutual fund are the profits that it generates for its investors. The returns of a direct fund can comparatively be higher than the returns of a regular fund. This is because the lower expense ratio of a direct fund means that more of the fund’s assets are invested in the underlying securities, which can lead to higher returns.
Service: Direct funds are self-service, which means that investors have to manage their own investments. This includes buying and selling units, monitoring the fund’s performance, and making changes to their investment strategy. Regular funds are assisted, which means that investors can get help from a broker or distributor. This can be helpful for investors who are new to investing or who do not want to manage their own investments.
How to Invest in Direct and Regular Mutual Funds?
Investing in both types of mutual funds is easy. For direct mutual funds, you can directly visit the AMC’s website to make your investments or invest through online platforms. For regular mutual funds, you usually need to go through a broker or agent like the Bajaj Finserv Platform. They will help you with the process.
When choosing between direct and regular mutual funds, consider your goals, your comfort with managing your investments, and the fees involved
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