Regular vs Direct Mutual Funds: The Actual Difference

nikhilchauhan

Administrator
Staff member
In recent years, direct plans in mutual funds have gained significant attention, leaving many investors curious about the distinctions between regular and direct plans. This guide aims to ease the complexities and help you choose the right mutual fund plan that aligns with your financial goals.

Regular Mutual Fund Plans

Regular plans involve investing through intermediaries such as financial advisors or bank relationship managers. As these intermediaries facilitate the sale of these plans, they receive commissions, leading to a higher expense ratio. Regular plans are suitable for investors seeking continuous support and guidance from financial advisors.

Direct Mutual Fund Plans

Direct mutual fund plans enable direct investment with the fund house, bypassing intermediaries. Since there is no broker involved, no commissions are paid, resulting in a lower expense ratio. Platforms like ET Money offer the convenience of investing in direct mutual fund schemes at zero brokerage and zero commission.

Key Difference between Regular & Direct Mutual Funds
  • Net Asset Value (NAV):
    • Regular plans have a higher expense ratio, leading to a lower NAV compared to direct plans.
    • Direct plans, with a lower expense ratio, generally have a higher NAV.
  • Returns:
    • Direct plans offer higher returns due to their lower expense ratio.
    • Regular plans, with a higher expense ratio, may provide slightly lower returns.
  • Role of Financial Advisor:
    • In direct plans, investors deal directly with the asset management company without the involvement of financial advisors.
    • Regular plans involve financial advisors who guide investors in the investment process based on their objectives.
Benefits of Regular Mutual Funds

While both types of plans have their advantages, regular funds may be beneficial for specific investors:
  • Financial advisor assistance for new investors needing continuous support and advice.
  • Regular monitoring of the portfolio by financial advisors.
  • Goal-based planning with a personalized investment plan.
Choosing Between Direct and Regular Mutual Funds

The decision depends on individual requirements and investment objectives.
  • Regular funds are suitable for those needing continuous support and personalized advice, even though they come with a higher expense ratio.
  • Direct funds appeal to investors seeking cost efficiency and higher returns and are comfortable with independent decision-making.
Identifying Mutual Fund Types

Key indicators to recognize regular or direct funds include:
  • Fund names: 'Regular' or 'Reg' for regular funds, 'Direct' or 'Dir' for direct funds.
  • Expense ratio: Higher expense ratios are generally linked to regular plans.
  • Net Asset Value (NAV): Direct plans usually have a higher NAV.
  • Consolidated Account Statement (CAS): Check for 'Advisor' in CAS; regular plans may show 'ARN' followed by a number.
Benefits of Direct Mutual Funds
  • Low Expense Ratio: Direct plans have a significantly lower expense ratio as there are no commissions or distribution charges.
  • Higher Returns: Higher returns in direct plans due to a lower expense ratio compared to regular plans.
  • Higher NAV: Direct plans generally have a higher NAV than regular plans of the same mutual fund.
  • Fewer Chances of Being Misled: Direct plans reduce the chances of being misled, as there is no conflict of interest with commissions.
  • You're in Control: Investors have full control over their investments in direct plans, fostering empowerment and active involvement.
 

Skylar

KF Mentor
There is well tabulated tread on it Direct VS Regular Mutual Fund
 
Last edited by a moderator:

arjungoyal12

KF Mentor
Direct VS Regular Mutual Fund in tabular format

ParameterDirect PlanRegular Plan
Third-PartyNot PresentPresent
Expense RatioLow expense ratio (no additional fees to broker/agent)High expense ratio (includes a commission to distributor/agent)
NAVHigh due to low expense ratio.Low due to high expense ratio.
ReturnsMarginally higher returns due to a low expense ratio.Marginally lower returns due to a high expense ratio.
Market ResearchDone by SelfDone by advisor
Investment AdviceNot AvailableProvided by advisor
InvestmentInvestors directly invest in a plan of a fund houseInvestment is made through third-party intermediaries

Here is a comparison between returns from the direct and regular mutual funds for SBI Bluechip funds. For simplicity, we have taken an initial investment of Rs. 10,00,000 in this illustration.

CALCULATIONSDIRECTREGULARDIFFERENCE
Initial investment amountRs. 10,00,000Rs. 10,00,000
Investment tenure5 years5 years
Average 5-year return20.34 %19.24 %1.1%
Final return amountRs. 25,23,771Rs. 24,10,515Rs. 1,13,256

Thus in this case Direct has given a better return, than a regular mutual fund
 

zacobite

KF Mentor
Direct VS Regular Mutual Fund in tabular format

ParameterDirect PlanRegular Plan
Third-PartyNot PresentPresent
Expense RatioLow expense ratio (no additional fees to broker/agent)High expense ratio (includes a commission to distributor/agent)
NAVHigh due to low expense ratio.Low due to high expense ratio.
ReturnsMarginally higher returns due to a low expense ratio.Marginally lower returns due to a high expense ratio.
Market ResearchDone by SelfDone by advisor
Investment AdviceNot AvailableProvided by advisor
InvestmentInvestors directly invest in a plan of a fund houseInvestment is made through third-party intermediaries

Here is a comparison between returns from the direct and regular mutual funds for SBI Bluechip funds. For simplicity, we have taken an initial investment of Rs. 10,00,000 in this illustration.

CALCULATIONSDIRECTREGULARDIFFERENCE
Initial investment amountRs. 10,00,000Rs. 10,00,000
Investment tenure5 years5 years
Average 5-year return20.34 %19.24 %1.1%
Final return amountRs. 25,23,771Rs. 24,10,515Rs. 1,13,256

Thus in this case Direct has given a better return, than a regular mutual fund
only edit is that many intermediaries also provide direct MFs like ET Money, Indmoney, Paytm etc
 
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