Mutual fund schemes have two plans- direct and regular. Read this post to know what they mean and how they are different.
After a lot of browsing and analysis, you’ve finally found a mutual fund scheme that suits your requirements. But before investing, one of the most important things you should check is whether you’re investing in the direct or regular plan of the scheme.
While you'll be investing in the same scheme through both plans, the selection will significantly impact your investment. Thus, it is essential to know what regular and direct mutual fund are and their differences. Take a look-
What is a Direct Mutual Fund?
Direct mutual fund investment is when you purchase scheme units directly from the Asset Management Company (AMC). No intermediaries like agents, brokers, or distributors are involved in the process.
As no intermediaries exist, the AMC is not required to pay any commission. As a result, the TER (Total Expense Ratio) of direct plans is lower than that of regular plans.
What is a Regular Mutual Fund?
Mutual fund investments through distributors are made in regular plans. Apart from selling mutual fund schemes, these distributors can offer additional services like-
Helping investors select the right mutual fund scheme
Complete KYC
Assist with the investment process
Ongoing services, like redemption requests, generating account statements, etc.
The distributors receive a commission for offering the distribution services. As a result, the TER of the regular plan of a mutual fund scheme is higher than the TER of its direct plan.
Differences Between Direct and Regular Mutual Fund Schemes
Here are some of the biggest differences between regular vs direct mutual funds-
Parameter |
Regular Mutual Fund |
Direct Mutual Fund |
Intermediary |
Yes, schemes are purchased through agents, brokers, or distributors |
Schemes are directly purchased from the AMC |
TER |
Higher, as commissions are involved |
Lower, as there are no commissions involved |
Returns |
Higher TER results in lower returns |
Lower TER results in higher returns |
NAV |
Higher TER leads to lower NAV |
Lower TER leads to higher NAV |
Investment Advise |
Yes, the intermediary can offer investment advice |
No, as the investor directly makes the investment |
How to Invest in a Direct Mutual Fund?
Direct plans have lower TER and generate higher returns than those of the regular plan when held for the same period. But how to invest in direct mutual funds? The easiest way to invest in the direct plan of a mutual fund scheme is through AMC’s official website.
If you prefer offline investments, you can visit the nearest AMC office to invest in the direct plan. RIAs (Registered Investment Advisors) can also help you invest in direct mutual funds. While the RIAs generally don't receive any commission from the AMC, they collect a service fee from the investors.
When Should You Consider a Regular Mutual Fund Over a Direct Mutual Fund?
While returns are vital for every investor, and direct plans offer higher returns, other aspects of mutual fund investing deserve your attention. For instance, what if you are a new investor and don't know how to select the right scheme per your investment goals and risk appetite? In such scenarios, the assistance of a mutual fund agent can help.
While regular plans are ideal for experienced and knowledgeable investors who prefer the Do it yourself (DIY) approach, they are not the best choice for every investor. Several investors, especially the new and slightly inexperienced ones, can immensely benefit from the expertise of an agent and investing in a regular plan.
Types of Mutual Funds
Selecting Between Regular and Direct Mutual Funds
Now that you know what is a direct plan in mutual funds and what is a regular plan, the selection between the two shouldn't be difficult. Choose a regular plan if you need assistance with your investment and go for a direct plan if you are an experienced investor who can analyze and select schemes on their own.
Note that either way, you’ll be investing in the same scheme. The scheme will have the same portfolio and will be managed by the same fund manager. The only differences will be the ones listed above.
Mutual Fund investments are subject to market risks, read all scheme related documents carefully.