Direct Vs Regular Mutual Fund Plans: Which One’s Right for You?

Mutual Fund investors can either choose direct or regular plans to invest in mutual funds schemes. A direct plan can be bought directly from the AMC or fund house whereas regular plans are purchased through intermediaries. Mutual fund schemes were offered under a direct plan for the first time in January 2013 previous to which it was offered only as a regular plan.Let’s understand direct and regular plans separately:

Direct mutual funds are directly purchased from the AMC without any intermediary or third-party agents such as brokers, distributors, etc., to facilitate the transaction. Since no agents are involved in the purchase, no commission or brokerage is charged, hence bringing down the expense ratio.

Regular mutual funds are schemes that are purchased through an advisor, distributor, or broker. The AMC pays a commission to the intermediary for adding new investors to their MF schemes. This commission is added to the expense ratio by the AMCs, hence making regular funds slightly costly than direct fund schemes.

Both direct and regular plan have their advantages for investors. Let’s look at the differences between the two plans.

• Return on Investment: Direct mutual funds plans deliver higher returns than regular plans due to the brokerage fee/commission involved in regular plans.
• Intermediation: No intermediation is required when direct MF plans are purchased whereas regular plans are bought through an agent, broker, or distributor.
• Expense Ratio: Expense ratio refers to the administrative fee or expense, which is deducted from the investor's return. The expense ratio is higher in regular plans due to brokerage that has to be paid to the intermediaries, whereas it is lesser in direct plans.
• Net Asset Value (NAV): NAV refers to the market value of a mutual fund unit. The NAV of the regular fund is lower due to its high expense ratio. On the other hand, the NAV of the direct plans is higher as no commission or brokerage is involved.

Direct plans are suitable for those investors who have good knowledge of MF and can do their research while bringing down their expense ratio. Regular plans are for the investors who are looking for expert guidance and wish to delegate the monitoring and review of their investment from time to time.If you are a new investor with only a little knowledge about mutual funds, it is better to buy schemes through a broker or agent since they can guide you well throughout the process.

The information contained herein is generic in nature and is meant for educational purposes only. Nothing here is to be construed as an investment or financial or taxation advice nor to be considered as an invitation or solicitation or advertisement for any financial product. Readers are advised to exercise discretion and should seek independent professional advice prior to making any investment decision in relation to any financial product. Aditya Birla Capital Group is not liable for any decision arising out of the use of this information.