Mutual Fund: Regular Fund or Direct Fund? Which is better?

There are two variations of each mutual fund: Regular mutual funds and direct mutual funds.

Regular mutual funds have a distribution commission to the agent, whereas direct mutual funds do not; this is one of the main differences between them. As a result, the Regular fund’s expense ratio is always larger. The fund’s total establishment expenditures divided by its Assets Under Management (AUM) is known as the expense ratio.

Returns

The Direct Mutual fund gives more return than the regular fund. The term ‘regular’ seems misleading at least to a few, as it carries the professional fees for the financial agent/adviser/company. Hence the net deposit will always be less compared to the same investment in a Direct Mutual Fund.

Intermediary

With a Direct Mutual fund, there is no middleman; instead, you deal directly with the Asset Management Company or the mutual fund company. Get as much information as you can about the fund here. What is the expense ratio, is there a minimum holding time, how has the fund performed historically, etc.? Direct mutual funds will always yield larger returns than the Regular fund. The “expense ratio” is the primary cause of this. As previously indicated, the Direct plan’s expenditure ratio is lower than that of the Regular plan. 

Net Asset Value

The net asset value (NAV) of a Direct mutual fund is higher than that of a Regular fund. This implies that a Direct fund investment will provide a higher return than a Regular mutual fund. This is evident as there isn’t a middleman to take a cut out of your deposit. The NAV, of any direct mutual fund, is always higher than the regular version of the same mutual fund. 

The NAV of a mutual fund is ascertained by dividing the total assets owned by the fund by the total number of outstanding units.

The NAV may be larger if the agency fees are avoidable. Because of this, the NAV of direct funds is higher than that of normal funds within the same mutual fund.

Fewer Chances of Being Misled

While retail investors are forced to think that only a very small percentage is charged by the agency in Regular Mutual Funds. The percentage is small. The agent need not get a huge amount either. Then who is the loser? Always the investor only. The longer the duration, there would be a significant difference.

Conclusion

When the investment is made for a long period say 10-15 years, calculate the return if the amount would have been invested in a Direct Fund. It would be a substantial amount. If you cannot manage your various investments alone, then get the professional assistance of qualified personnel who can suggest various investment opportunities. The present practice of engaging one agent for a Mutual fund, and another for some other investment will bring more confusion as each tries to sell their product. A single financial planner can help you to tide over such a situation. I would recommend an annual professional fee to them rather than going for a Regular Mutual fund.