Mutual funds have 2 categories- Direct and regular mutual funds. The direct mutual funds can be brought directly from the asset management company. Regular mutual funds are brought from an intermediary. Direct vs regular mutual fund is a long-debated topic. Before going into that, let’s know what direct and regular mutual funds are.
Direct Mutual Funds
Direct mutual funds are those mutual funds that you can directly purchase from the AMC(Asset Management Company). Under this, there are three categories- open-ended funds, New Fund Offers(NFO), and interval funds. There is no role of brokers, agents, and intermediaries in direct funds which reduces the expense ratio. There will be no transaction charges even if you begin a SIP or make investments. Net Asset Value(NAV) is different.
Regular Mutual Funds
The purchase of regular mutual funds occurs through intermediaries, brokers, distributors, and advisors. Every time a middleman brings a new investor, the AMC pays commission to him which is in turn added to the expense ratio. Thus, regular funds are a bit costlier than direct funds but often it is more necessary to have an experienced advisor help you choose appropriate funds than choose them all by yourself.
Why you should invest in Regular over Direct mutual funds
Direct vs regular mutual fund-You may wonder why you would want to invest in regular funds when you get the same funds at a lower price. Well, here are some reasons investors choose regular mutual funds between direct vs regular mutual funds:
As discussed earlier, in the case of direct plans, the expense ratio is much less. This is because there are no middlemen in this case like advisors, brokers, distributors, or intermediaries. Thus, there is no question of commission to be paid by the AMC. Whereas, you have to buy the same funds at a higher price with regular plans. It may look like direct plans are better than regular but it requires much more effort from the investor. They have to choose funds that meet their goals without any professional guidance which can be difficult at times and time-consuming. This issue does not arise when a person invests in regular plans as they have an intermediary for help. This is a prime difference under direct vs regular mutual funds.
Choosing an appropriate mutual fund that satisfies your goals is not an easy job. You have to compare and analyze the fund performances. Then you have to shortlist the funds that match your financial goals. It requires knowledge, expertise, and experience which can be provided by an agent or distributor. Between direct vs regular mutual funds, you get this advantage in regular plans where an advisor guides you to pick the most profitable funds among thousands of them swarming in the market.
Regular monitoring and reviewing
It is not always possible for an individual to monitor the performance of his funds. Regular review of portfolio does not become possible. It requires efficiency. In this case, the distributor comes in. He reviews your portfolio and does all necessary adjustments if needed like rebalancing asset allocation. This increases the chance of more returns. This balances the extra expense ratio.
Regular mutual funds are more investor-friendly plans. Your investments are facilitated and tracked in regular plans. Selling and reviewing mutual funds are not just the only part of it.
These are the main arguments for the direct vs regular mutual funds debate. Thus, though direct mutual funds always have a higher NAV than regular mutual funds and in all probability, will give you returns, regular plans come with the expertise of a financial advisor. Analyzing the scenario, if you do not have the time to review and research funds regularly, it is much safer and profitable to opt for regular funds. Your chances of getting returns increase manifold.