Direct vs Regular Mutual Fund: Which is Better?
Every mutual fund is available in two formats: direct mutual funds and regular mutual funds. The primary difference is that regular mutual funds include a distribution commission, leading to a higher expense ratio compared to direct mutual funds, which do not include such a commission. The expense ratio indicates the total expenses of the fund relative to its assets under management (AUM).

This is a major reason direct mutual funds are often considered superior to regular funds. However, other factors also make direct mutual funds advantageous for investors as opposed to investing through regular mutual funds.

Difference Between Direct and Regular Mutual Funds

• Low Expense Ratio

  The expense ratio, or the fees charged by the mutual fund company, is significantly lower for direct mutual funds. For example, if a scheme charges a 0.2% expense ratio, it means 0.2% of the AUM is allocated for operational costs and administrative expenses.

• Investors often seek advice from mutual fund advisors or local financial services when opting for regular funds. The advisor's fee is deducted from the investment, contributing to a higher expense ratio. Direct mutual funds, however, do not incur commission fees or distribution charges, resulting in a lower expense ratio.

• Higher Returns

  Direct mutual funds consistently deliver higher returns compared to their regular counterparts, as the lower expense ratio in direct plans leads to better returns.

• Higher NAV

  The Net Asset Value (NAV) of direct mutual funds is generally higher than that of regular funds. NAV represents the value per unit of the fund, calculated by dividing the total assets by the outstanding units.

• The pool of assets typically includes debt instruments like bonds, equities like company shares, and, occasionally, cash. Minimizing agent fees can elevate the fund's NAV, making direct funds more valuable.

Fewer Chances of Being Misled

While some investors find comfort in having an advisor, relying solely on them can sometimes lead to being misled. Numerous complaints against advisors underscore this risk, particularly because their income is commission-based, potentially creating a conflict of interest.

When choosing direct funds, the likelihood of encountering such issues diminishes.

You’re in Control

Direct funds offer complete control over your mutual fund investments. However, this control demands that investors conduct personal research into mutual funds, AMCs, KYC updates, and other procedural tasks, empowering them as informed investors. Although some prefer commission-based advisors to manage their investments, a proactive approach towards financial goals is often beneficial.

Educate yourself about the AMC you wish to invest in, compare funds, or utilize wealth management platforms, such as Groww, to either construct a personalized portfolio or choose from pre-made portfolios based on specific needs.