The Difference Between Direct and Regular Mutual Funds

When considering direct vs regular mutual funds, remember that both allow you to invest in the same scheme. The key difference lies in how you invest. Direct plans let you invest directly with the fund house, often resulting in lower fees. 

Regular plans, however, involve intermediaries like brokers or agents. That is why they usually have higher costs. Understanding these differences can help you make better investment choices and manage expenses more effectively.

Returns

When comparing direct vs regular mutual funds, the main difference lies in their cost structure, which directly impacts your returns. Here’s how the returns differ between the two types:

Direct Mutual Funds

These mutual funds may generally provide higher returns due to lower expense ratios. 

For instance, if you buy a laptop directly from the manufacturer for ₹40,000, you pay only for the product. This way, you do not have to pay any added intermediary costs. 

This is similar to direct mutual funds, where your entire investment is used for the fund’s growth. That results in higher potential returns due to lower fees.

Regular Mutual Funds

Because of the commissions paid to intermediaries, these mutual funds come with higher Total Expense Ratios (TER). That leads to lower NAV and, in turn, may lead to reduced returns. 

For example, buying the same laptop through a distributor may cost you ₹45,000 due to the commission involved. 

Similarly, with regular mutual funds, part of your investment is used to cover intermediary fees. That ultimately lowers the returns you may receive compared to direct options.

Benefits

Both direct and regular mutual funds offer unique benefits depending on your investment preferences. Here’s how the advantages pan out between the two:

Direct Mutual Funds	Regular Mutual Funds
Lower expense ratios help your investment grow more	You are in contact with brokers or financial advisors for guidance, helping you utilise their experience and insight
Lower fees lead to higher Net Asset Value (NAV), giving you better value per unit	Advisors recommend funds depending on your preferences
No intermediary fees lead to higher returns	Intermediaries monitor and adjust your investments regularly, ensuring your portfolio stays on track

Differences Between Direct and Regular Mutual Funds

When choosing between the two types of mutual funds, understanding their key differences is crucial. The table below highlights the differences between direct and regular mutual funds to help you make an informed decision.

Feature	Direct Mutual Funds	Regular Mutual Funds
Overview	Investment options offered directly by the Asset Management Company (AMC)	Investment options accessed through intermediaries such as brokers or financial advisors
How to Invest	Purchased directly through the fund’s website or the AMC’s platform	Purchased through intermediaries who may offer additional services and guidance
Cost Structure	Typically lower due to the absence of intermediary commissions or distribution fees	Higher expense ratio due to commissions paid to intermediaries
Investor Involvement	Investors make independent decisions and manage their own investments	Investors receive assistance and guidance from intermediaries for decision-making
Return Potential	Potentially higher returns due to lower expenses	Returns may be lower due to the additional fees involved
Access to Investment	Direct access to investments via the fund’s official website or at the fund house	Access via intermediaries who offer value-added services such as investment advice and portfolio management
Fees and Commissions	No commissions or fees for distribution	Commissions paid to brokers or advisors, which increase the expense ratio
Impact on NAV	Higher Net Asset Value (NAV) as a result of lower costs	Lower NAV due to higher costs associated with intermediaries
Example Expense Ratio	Around 0.25% – 0.75% of Assets Under Management (AUM) for fund expenses	Around 1% – 2% of AUM for fund expenses, including broker commissions

Common Mistakes to Avoid

Regardless of which type of mutual fund you go for, here are a few things you need to avoid:

• Focusing only on past performance is a mistake since it doesn’t guarantee future returns
• Not checking your portfolio regularly can leave you out of sync with your goals
• Investing without a financial plan can lead to chasing trends instead of sticking to your goals
• Not matching your investments to your goals could lead to disappointing results
• Ignoring your risk tolerance means you might pick funds that aren’t right for you
• Over-diversifying can spread your investments too thin and lower your returns
• Putting too much in sectoral and thematic funds can be risky as sectors don’t always perform the same over time 
• Relying too much on mid-cap and small-cap funds can hurt you in a down market
• Putting short-term money in equity can expose it to too much market volatility

Choosing between direct vs regular mutual funds depends on your investment style. Direct mutual funds are cost-effective, with lower expense ratios, making them ideal if you prefer managing your investments on your own. Regular mutual funds offer expert guidance, making them a great option if you need professional advice.

No matter which route you choose to go with, investing in mutual funds gives you a way to access funds when you need them. With the Fibe Loan Against Mutual Funds, you can get up to ₹10 lakhs by using your mutual funds as collateral without withdrawing from your investment. To get started, download the Fibe App and apply now. 

FAQs About Direct and Regular Mutual Funds

Can I switch from regular mutual funds to direct mutual funds?

Yes, you can make this switch. Just be sure to follow the fund house’s process.

How does my choice between direct and regular mutual funds impact my investment returns?

Going for direct mutual funds usually means higher returns since there are no added fees that intermediaries charge. Regular mutual funds, on the other hand, tend to have higher costs because of the commissions to brokers or advisors, which can lower your returns. However, regular funds can enable you to get financial advice. 

Is it easier to track the performance of direct mutual funds compared to regular ones?

Yes, it’s easier to track direct mutual funds as you manage them directly on the fund house’s platform. Regular mutual funds require updates from intermediaries, making tracking less direct.

How to identify direct and regular mutual funds?

To tell apart direct and regular mutual funds, check the following details:

• Direct plans will have “Direct” or “Dir” in the name, while regular plans will show “Regular” or “Reg.”
• Your Consolidated Account Statement (CAS) will show which plan you have
• A regular plan will have an Advisor Registration Number (ARN) in the “Advisor” field