Did you know that there are two types of plans in mutual funds in India – direct plan and regular plan. Let’s take a look at the difference between these two types of plans in mutual funds.
What are mutual funds?
Before we dive into the differences, let’s quickly understand what are mutual funds. Mutual funds are like a big pool of money collected from many investors. This money is then used to buy a mix of different things, like stocks and bonds. When these investments make money, the investors also make money.
There are two types of plans in mutual funds in India: Direct funds/ plans and Regular funds/ plans.
Direct mutual funds: Direct mutual funds are like going to a shop and buying something directly from the shopkeeper. In this case, the shopkeeper is the AMC (Asset Management Company). When you invest in direct mutual funds, you buy them directly from the company that manages the mutual fund (AMC). There’s no middleman involved, like an agent or a broker. Because of this, the expenses, or charges you pay are usually lower in direct mutual funds. This means you get to keep more of the money you make from your investments.
Regular mutual funds: Regular mutual funds, on the other hand, are like buying something from a shop through a salesperson. In this case, the salesperson is the agent or broker who helps you invest in the mutual fund. They give you the important information, help with paperwork, and take care of things for you. But here’s the catch – because there’s a middleman involved; the mutual fund company pays them a commission. This commission is usually a part of the expense ratio. As a result, the returns you get from regular mutual funds might be a little lower compared to direct mutual funds.
When selecting an online platform for purchasing mutual funds, it’s important to consider factors such as user-friendliness, comprehensive information availability, and minimal fees. An example of such a platform is the Bajaj Finserv mutual fund investment platform. With its user-friendly interface and zero commission charges, this platform enables you to effortlessly invest in mutual funds and efficiently manage your investment portfolio.
Difference between direct and regular mutual funds
Feature
Direct fund
Regular fund
How they are sold
Directly by the AMC (Asset Management Company)
Through intermediaries, such as brokers and distributors
Expense ratio
Comparatively Lower
Higher
Returns
Comparatively higher
Lower than Direct
Service
Self-service
Assisted
Let’s understand a few important terms:
Expense ratio: The expense ratio is the fee that a mutual fund charges to cover its operating expenses. The expense ratio is expressed as a percentage of the fund’s assets. Direct funds typically have lower expense ratios than regular funds. This is because there are no intermediaries or brokers involved in the sale of direct funds, so there is no commission to be paid.
Returns: The returns of a mutual fund are the profits that it generates for its investors. The returns of a direct fund can comparatively be higher than the returns of a regular fund. This is because the lower expense ratio of a direct fund means that more of the fund’s assets are invested in the underlying securities, which can lead to higher returns.
Service: Direct funds are self-service, which means that investors have to manage their own investments. This includes buying and selling units, monitoring the fund’s performance, and making changes to their investment strategy. Regular funds are assisted, which means that investors can get help from a broker or distributor. This can be helpful for investors who are new to investing or who do not want to manage their own investments.
How to Invest in direct and regular mutual funds?
Investing in both types of mutual funds is easy. For direct mutual funds, you can directly visit the AMC’s website to make your investments or invest through online platforms like “Bajaj Finserv app” which offers direct mutual funds in association with its group entity Bajaj Finserv Direct Limited
For regular mutual funds, you usually need to go through a broker or agent like the Bajaj Finserv Platform. They will help you with the process.
Conclusion
To sum it up, the main thing to remember is that direct mutual funds have lower charges because there’s no middleman involved. This can make a difference in the long run and help you keep more of the money you make from your investments. Regular mutual funds involve intermediaries like agents or brokers, which can lead to slightly higher charges. When choosing between direct and regular mutual funds, consider your goals, your comfort with managing your investments, and the fees involved.
