Direct and regular plans are two options available to mutual fund (MF) investors, and understanding their differences is crucial before making an investment decision. Direct plans involve direct investment in a mutual fund scheme without the involvement of intermediaries, while regular plans are accessed through distributors or agents.
Difference between direct and regular plan MF investors must know before investing
Expense ratio
The primary distinctions between these plans lie in the expense ratios, returns, and convenience of investment. “Direct plans typically have lower expense ratios compared to regular plans, as they exclude distributor commissions,” said Amit Gupta, MD, SAG Infotech.
Returns
Direct plans tend to offer higher returns in the long run. On the other hand, regular plans include distributor commissions, resulting in higher expense ratios and comparatively lower returns.
Convenience
In terms of convenience, direct plans are often accessed online, allowing investors to make transactions and monitor their investments independently.
Regular plans, on the other hand, involve the assistance of intermediaries, making them more suitable for investors who prefer personalized guidance and face-to-face interactions.
Suitability
As per Vinit Khandare, CEO and Founder, MyFundBazaar, a direct mutual fund is the greatest option for a clever investor who has the market knowledge, expertise, and time to determine the finest mutual fund to invest in. The extra expense of hiring an advisor is not worthwhile because it doesn’t provide any further benefit.
While the majority of investors seek financial support. Those looking for such guidance can invest in the top funds that their advisor or distributor recommends. Following that, the investment might be done in a direct plan or a regular plan, he added.
Investment goals
Amit Gupta suggested investors assess their investment goals, risk appetite, and level of expertise before choosing between direct and regular plans to ensure they align with their individual preferences and requirements.
NAV
Net Asset Value is the net value of an investment fund’s assets less its liabilities, divided by the number of shares outstanding. Most commonly used in the context of a mutual fund or an exchange-traded fund (ETF). In direct funds, NAV is high due to the low expense ratio, whereas in regular plans, the NAV is low due to the high expense ratio.
Investment advice
In Direct Mutual Fund plans, investment advice is not available whereas in the regular plan, you can consult an advisor. However, regular plans may be more suitable for investors who require guidance and assistance in selecting and managing their MF investments, said Amit Gupta.
Updated: 15 Jun 2023, 01:58 PM IST