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All Mutual Funds are available in two forms – Direct and Regular. The key difference is that the expense ratio is higher for regular funds. The expense ratio is the fund’s total expenses to its assets under management (AUM).
Direct Mutual Fund
A Direct Mutual Fund is a mutual fund that an investor purchases directly from the Asset Management Company (AMC) eliminating the intermediaries.
Commission to Intermediaries: Direct Mutual funds do not involve any intermediaries, so there is no commission involved.
Expense Ratio: Having no distribution fees, this has a low expense ratio with the possibility of return and profit.
Return: The low expense ratio most of the time transfers into slightly Higher returns or, in most cases, better returns, especially during long-term investment.
Net Asset Value (NAV): A Direct Mutual Fund often has a higher NAV because of a lower expense ratio
Convenience: The Direct Mutual Fund should be self-managed, and have higher risk as the investors need to research and manage their investment. so it is less of a convenience
Regular Mutual fund
A Regular Mutual Fund is a mutual fund scheme that is purchased through an intermediary such as a Distributor, Broker, or Financial advisor.
Commission to Intermediaries: Direct Mutual funds involve intermediaries, so there is a commission involved. The commission varies from 1 to 1.25 percent.
Expense Ratio: Regular funds have a higher expense ratio to cover intermediary costs. This fee is taken from your returns.
Return: The higher expense ratio transfers into lower returns.
Net Asset Value (NAV): A Regular Mutual Fund often has a lower NAV compared to a Direct fund.
Convenience: The Regular fund has higher convenience as investors will get advice and support from Financial advisors.
Direct vs Regular Mutual Fund Comparison
| Aspects | Direct Mutual Fund | Regular Mutual Fund |
|---|---|---|
| Commission | No Commission | Commission of 1 - 1.25% |
| Expense Ratio | Lower | Higher |
| Returns | High Potential | Low Potential |
| Convenience | Lower | Higher |
| NAV | Higher | Lower |
Which one should you choose - Direct vs Regular Mutual Fund?
For More Returns: Direct funds can be better since they don’t charge much in their fees
For Convenience and Advice: Regular funds would be better for first-time investors or those seeking advice but it costs more.
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