Direct vs Regular Mutual Fund - Which is Better? (2024)

FAQs

Direct vs Regular Mutual Fund - Which is Better? ›

The choice between direct and regular mutual funds hinges on individual needs. Direct plans offer higher returns with lower costs but require self-research. Regular plans offer advisor guidance but come with higher fees.

As the regular fund has a higher expense ratio due to the commission and brokerage involved, the NAV of the regular schemes is generally lower than the direct plans since there is no commission or brokerage in direct plans. Returns: Direct plans offer higher returns due to a lower expense ratio than regular funds.

A mutual fund provides diversification through exposure to a multitude of stocks. The reason that owning shares in a mutual fund is recommended over owning a single stock is that an individual stock carries more risk than a mutual fund. This type of risk is known as unsystematic risk.

Due to the absence of the commission the expense ratio of direct mutual funds is way lesser than regular mutual funds thus helping you generate higher returns on your investments.

Key Takeaways. Direct Equity and mutual funds are traditionally popular investment instruments. Equity shares are more static, while mutual funds are dynamic and include various types. Opportunities of portfolio diversification are higher with mutual funds, but equity shares can generate higher returns.

Only after the lock-in period of the regular plan has ended, can you switch to its direct plan. Equity-linked savings schemes (ELSS) have a mandatory lock-in period of three years. One cannot switch from a regular to a direct plan, even of the same scheme during the lock-in period.

Index funds offer market returns at lower costs, while active mutual funds aim for higher returns through skilled management that often comes at a higher price. When deciding between index or actively managed mutual fund investing, investors should consider costs, time horizons, and risk appetite.

However, mutual funds are considered a bad investment when investors consider certain negative factors to be important, such as high expense ratios charged by the fund, various hidden front-end, and back-end load charges, lack of control over investment decisions, and diluted returns.

Mutual funds and ETFs may hold stocks, bonds, or commodities. Both can track indexes, but ETFs tend to be more cost-effective and liquid since they trade on exchanges like shares of stock. Mutual funds can offer active management and greater regulatory oversight at a higher cost and only allow transactions once daily.

Direct Plans are for those who prefer to invest DIRECTLY in a mutual fund scheme without the help of any distributor/agent. Investing in a Direct Plan is like buying a product from the manufacturer directly, whereby the cost to customer would be lower.

What is the advantage of direct fund? ›

Higher Returns

The returns of any direct mutual fund are always higher than the regular version of the same mutual fund. The main reason behind this is the 'expense ratio'. The expense ratio is lower for direct plan vs regular plan as mentioned above.

To choose a mutual fund, define your investment objectives (e.g., retirement, education, wealth creation), choose a fund category (equity, debt, hybrid) based on your risk appetite, and evaluate historical returns, expense ratios, and fund managers.

Direct mutual funds typically have a higher NAV due to their lower expense ratio. This lower expense ratio in direct funds allows a larger portion of your investment to actively generate returns, potentially leading to higher overall returns compared to regular funds with higher expense ratios.

However, directs can be complex, illiquid, risky single-asset investments, with no guarantee of outperformance over funds or publics, and require skilled investment management resources for success.

Check the account statement of every mutual fund scheme you have invested in. You can get your account statement from the AMC or consolidated statement from the RTA (e.g. CAMs, Karvy etc). If you have invested in Direct Plan, the mutual fund scheme name will include the word – “Direct”.

Some of the advantages of mutual funds include advanced portfolio management, dividend reinvestment, risk reduction, convenience, and fair pricing, while disadvantages include high expense ratios and sales charges, management abuses, tax inefficiency, and poor trade execution.

Another aspect of direct vs. indirect real estate investing is understanding liquidity. Indirect investing in publicly-traded REIT stocks or mutual funds allows investors to easily buy and sell shares. Direct real estate investing has traditionally involved buying and holding assets over a period of years.