What Is The Difference Between A Direct Mutual Fund And A Regular Mutual Fund?

The mutual funds are one of the best ways to invest your money and enjoy the great writers, but it is important to understand that this type of investment comes in two different categories which are Direct mutual funds and regular mutual funds. These both are the same things and do not have much difference, but the biggest difference they have is that the regular mutual funds are more costly than the direct mutual funds. Both of these schemes are run by the same management and works on the same ethics. Here is a brief discussion to make you understand the basic difference between a direct mutual fund plan and a regular mutual fund plan.

Regular plan-

The regular plan of mutual fund investments basically means that the kind of investment you are making is included with a hidden amount which is to be paid to your broker as a commission. You will never know that you are paying that amount to the broker in terms of commissions as these payments are not charged to you directly. This is done in a way that a cost is deducted from your returns and you are given the rest of the amount. This plan is also regulated by the same management, but the basic difference it has from the direct plan of the mutual funds is that they will cost you much more and they have a higher expense ratio as compared.

Direct plan-

As the name suggests the direct mutual fund platform is the kind of mutual fund plan in which you have to invest directly through Asset management companies (AMC) and you have to do all the documentation on your own. This is the plan who came into practice after the regular plan but gained its popularity very easily and the reason behind it is that it includes no extra costs and have the lowest expense ratio as compared to the regular plan. The direct plans of mutual funds are basically the plans where the mutual fund house or the AMC does not charge any extra expense on your investment such as the distributor commission, transaction changes or any other kind of loads and expenses. This makes the direct plans the best kind of plans to be chosen by the investors. It is to be remembered that the objective of the mutual fund scheme is always similar in both of the plans. Although in case of direct plans, the NAV is higher in comparison to that of regular plans.

Direct plan Vs Regular plan-

As it is very easy to judge that the regular mutual plans are more costly than the direct mutual fund plans, the agencies and distributors will always try to convince you that the commission you have to pay in regular plans will not matter in a long run investment. Although, it is not the only difference between both the plans which makes direct mutual fund plans the better choice. The difference in NAV and the expense ratio is already a big enough reason to go for the direct plan instead of the regular plan. But in some cases, where the investors are too much dependent on their portfolio manager and the distributor, they don’t mind paying some brokerage commission to them. So it is totally up to you that which plan you want to choose between the two. The good agents and distributors these days does not recommend you to choose the regular plan over the direct plan because they do not want you to end up paying the hidden charges and the brokerage commissions from your returns without even realizing it.

Categorized as Finance

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