Direct vs Regular Mutual Funds

Direct vs Regular Mutual Funds – Which one is Better?

Mutual Fund
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A mutual fund is an investment plan where all the investors are pooling their money together in a fund. A professional will invest this money into different securities like stocks, shares, etc. The returns generated after investing funds are shared by all the investors. Mutual funds are an opportunity to create good wealth. It gives a bright solution for investments. Mutual funds give higher returns as compared to other investments. Mutual fund growth is seen when an investor gets high returns and chances of liquidity. It is economically convenient and is a transparent method. Let’s understand and categorize direct vs regular mutual funds.

There are two kinds of mutual funds:

  1. Direct Mutual Funds
  2. Regular Mutual Funds

Today, we will discuss the difference between these two kinds of mutual funds, i.e., the difference between Direct and Regular Mutual Fund while considering every detailed investment benefit of direct vs regular mutual funds.

What are Direct Mutual Funds?

Direct mutual funds are the investments done by an individual directly with an asset management company (AMC). AMC is a firm that invests collected funds of individual investors. It then makes the capital to work through different investments that include stocks, bonds, real estate, etc. Direct mutual funds don’t give an option for investment advice on direct mutual fund platforms. But still, market knowledge is required well in advance before investing for higher returns to achieve mutual fund growth in a direct mutual fund platform.

Benefits of Direct Mutual Funds 

  1. Liquidity The term liquidity means the extent to which the funds are quickly converted to cash. Direct mutual funds attract a 0.0070% liquidity rate if redeemed within 1 day, 0.0065% liquidity rate if redeemed within 2 days, 0.0060% liquidity rate if redeemed within 3 days, 0.0055% liquidity rate if redeemed within 4 days, 0.0050% liquidity rate if redeemed within 5 days, 0.0045% liquidity rate if redeemed within 6 days. 
  2. Expense Ratio – An expense ratio (ER), known as the management expense ratio (MER), calculates how much of a fund’s assets are used for administrative and other operating expenses. It is about 1% for mutual fund growth.
  3. Diversification – It is known as the asset’s allocation in a way that unsystematic risks are handled in any investment. 
  4. Cost Efficiency – Direct mutual funds come with lower maintenance costs, hence making them less cost-effective.
  5. Automated payments – These are one-time processes to set up a mandate recurring payment through a NACH form. It is suitable for investors who do not have access to net banking facilities.
  6. Expert management – The managers of the mutual fund decide how the pooled funds will be invested. However, in a direct mutual fund platform, there is no need for any intermediary for mutual fund growth.

What are Regular Mutual Funds?

Regular mutual funds are investments where distribution services from an intermediary are required. On this platform, mutual fund growth is based on a higher expense ratio and the availability of mutual funds advice. That means even if an investor doesn’t have any knowledge of the market, one can still figure out what is best for the capital funds. Regular funds are defined as mutual funds that are bought through an intermediary like a mutual fund broker, distributor, or advisor.

Benefits of Regular Mutual Funds 

  1. Liquidity – Taking funds out in cash form in case of emergencies is available on this platform.
  2. Expense Ratio – About 2% are in this platform of Regular mutual funds.
  3. Diversification – Assets are allocated in different securities like stocks, shares, bonds, commodities, etc.
  4. Cost Efficiency – Regular mutual funds have lower NAV.
  5. Automated payments – One has to ask experts to set up an automated payments option for future transactions in mutual funds.
  6. Expert management – As an individual doesn’t have any knowledge of the market, experts like professional financial advisors will help them and advise them to invest funds in low-risk securities for mutual fund growth.

Now, let’s discuss the difference between Direct and Regular Mutual Funds in detail.

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Difference Between Direct and Regular Mutual Fund

The difference between Direct and Regular Mutual Fund can be explained/understood easily by looking at the table below:

S.No Difference between Direct and Regular Mutual Fund  Direct Mutual Funds Regular Mutual Funds
1 Expense Ratio 1% 2%
2 Monthly SIP Amount Rs. 25k Rs 25,000
3 Annualized Return 12% 12%
4 Investment Tenure 30 years 30 years
5 NAV Higher Lower
6 Final Corpus (at the time of maturity of a SIP) Rs 6.46 crore Rs 5.17 crore
7 5–10-year return 19.37%-nil 17.88%-16.44%
8 Performance Rs 1.29 crore which is about 20% more than the regular plan. Rs 1.29 crore which is about 20% more than the regular plan.
9 Guidance No Yes
10 Control Yes No

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Direct vs Regular Mutual Funds – What is Better?

For mutual fund growth, it is important to look for various factors like features in mutual fund platforms and their usage, diversification of funds into different securities, user-friendliness of the platform, technical stability in a platform, the reputation of the direct mutual fund platform, and charges applicable for using mutual funds platform. 

When an individual is considering direct vs regular mutual funds, it’s financially more acceptable to choose direct mutual funds. It provides a lower expense ratio that gives a higher NAV and higher returns. However, an investor should individually assess and select the right mutual funds for their fund’s investment portfolio. Only 22% of equity mutual funds are direct funds, as per industry estimates in India.

An investor has to be ready with their financial goals, risk appetite, and investment horizon while choosing mutual funds direct investments for investment purposes. Investors should be aware of how to evaluate mutual fund schemes to pick the ones that are best suited. Looking at direct mutual fund growth, it’s convenient to directly invest in the mutual fund using an online platform through the official website of the AMC. 

But, if an investor is new to the world of mutual funds, they must consider Regular mutual funds for about a year or so. Any risks or uncertainties related to the funds are controlled by the financial experts. They will help investors to get higher returns on their capital invested. 

We hope we have been able to identify all the differences between direct and regular mutual funds where we have diversified all aspects of direct vs regular mutual funds in detail.

Direct vs Regular Mutual Funds – FAQs

Q1. What do you mean by a Direct Mutual Fund Platform?

Ans. A direct mutual fund platform is a platform that is directly offered to an investor by the AMC or finance house.

Q2. What is the Biggest Difference Between Direct and Regular Mutual Fund / Direct vs Regular Mutual Funds?

Ans. The major difference between Direct and Regular Mutual Fund/ direct vs regular mutual funds is the Expense ratio evaluated.

Q3. Why do we need Mutual Funds/ Mutual Funds Direct Investments?

Ans. We need mutual funds direct investments to grow our wealth with higher returns.

Q4. Where Should We Purchase Direct Plans From?

Ans. Either one can buy/purchase Direct plans from retail investors or from Mutual Funds houses.

Q5. How Can We Determine Mutual Fund Growth?

Ans. One can determine mutual fund growth by evaluating if the money invested increases the net asset value (NAV) or not while comparing direct vs regular mutual funds.

Q6. What do you mean by Mutual Funds Direct Investments?

Ans. Mutual funds direct investments are the investments done at an individual’s own risk where no intermediary is involved.

Q7. Which is Better- Direct vs Regular Mutual Funds in regards to the Difference between Direct and Regular Mutual Fund?

Ans. Whatever mutual fund gives you a higher Net Asset Value or NAV when you compare direct vs regular mutual funds; you must consider that.

Q8. What are the Benefits of Direct Mutual Funds?

Ans. Higher NAV, higher returns, and low expense ratio are some of the benefits of mutual funds direct funds.

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