One key aspect you should know if you are investing in mutual funds is that every scheme has two variations, direct and regular. Comparing a direct vs regular mutual fund scheme can be a challenge, but you can only start investing once you decide. 

 

Direct mutual fund plans came into play after SEBI made it mandatory for AMCs to offer them over 10 years ago. They offer investors the opportunity to invest directly in a scheme without any intermediaries. 

What are Regular Mutual Funds?

Regular mutual funds refer to mutual fund schemes you can invest in via mutual fund distributors. This means a third party is involved between you and the AMC whose scheme you invest in. 

 

The mutual fund distributor manages your portfolio and helps you comply with the regulations and documentation. Given this, a regular mutual fund plan is popular among investors who prefer the expertise and help of financial advisors.

 

However, mutual fund distributors charge a fee for offering their services. The AMC ultimately adds this to a regular mutual fund's total expense ratio (TER). A higher TER reduces your earnings and increases your costs. 

What are Direct Mutual Funds?

Direct mutual fund plans are schemes where you invest directly with AMC without any intermediary, such as a broker. SEBI made it mandatory for AMCs to offer a direct investment option without any third parties in 2013.

 

In such a scheme, the responsibility of creating and managing your portfolio rests on your shoulders. This also means that you will have to manage and track the performance of the fund and ensure you comply with all the requirements. 

 

The absence of a third party means that the total expense ratio will be lower, which can increase your returns. However, you will have to strategise and take the right calls at the right time to get the most value from your investment.

Difference Between Direct and Regular Mutual Funds

Here is a tabular overview of the difference between direct and regular mutual funds:

Point of Difference

Direct Mutual Funds

Regular Mutual Funds

Returns

Can be higher due to low TER

Can be low due to high TER

NAV

Higher due to low TER

Lower due to high TER

Expense ratio

Lower due to no intermediary

Higher due to intermediaries

Investment route

Direct investment without an intermediary

Investment through an intermediary

Market Research and Advisory Services

To be conducted by the investor using available resources 

Financial advisors lend their expertise 

How to Choose Between Direct and Regular Funds

To choose between direct and regular plans, consider your knowledge of the financial market. Simply put, a direct mutual fund plan requires you to make decisions based on your understanding of the fund’s performance. 

 

So, opting for direct mutual funds is ideal if you are confident about your knowledge of financial markets and can take quick decisions when needed. However, if you are not, you can get the help of financial advisors by investing in a regular mutual fund plan. 

 

But keep in mind that the TER of regular MF schemes is higher when compared to direct schemes. While the difference may be marginal in some cases, it may be higher in some and can significantly impact your earnings. So, remember to consider the TER before choosing.

How To Recognise If a Mutual Fund is Regular or Direct

When investing in mutual funds, it is essential to check the type of scheme you are investing in. This is because there are two types – regular and direct. Here are some tips that can help you recognise if a mutual fund plan is regular or direct:

  • Check the Scheme’s Name

One way of recognising if the mutual fund is regular or direct is by checking the scheme’s name. A direct plan will have ‘Direct’ in the name. If you are investing through an investment portal, look for the ‘Dir’ word in the name since they use this abbreviation for direct mutual funds.

 

Similarly, a regular mutual fund will have ‘Regular’ or ‘Reg’ in the scheme’s name. Also, note that if there is no mention of any words, then the mutual fund is typically a regular one.

  • Assess the Expense Ratio

The expense ratio refers to the annual maintenance charge that mutual funds levy to cover their expenses. These expenses include operating costs, allocation charges, management fees and other charges. Regular mutual funds typically have a higher expense ratio than direct mutual funds.

  • Check the Consolidated Account Statement

Another way to check is to refer to your consolidated account statement or CAS. This document provides a summary of all your mutual fund investments. You can easily download it online and use it to check whether the mutual fund is direct or regular.

 

You will find a field called ‘Advisor’ in the consolidated account statement. It is a regular plan if this field has ‘ARN’ and a numerical code. On the other hand, it is a direct plan if this field has no values.

  • Verify from the AMC’s Communication

When you invest in a mutual fund via an Asset Management Company (AMC), they communicate via SMS or email. You can check if the mutual fund is regular or direct by checking the AMC’s emails and SMS.

 

Armed with this information about direct and regular mutual funds, remember to diversify your portfolio to minimise risk and maximise gains. You can choose from some top investment avenues on Bajaj Markets. 

 

With a completely online process, you can invest in mutual funds directly at zero commission and even compare your options easily to make informed decisions.

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FAQs on Direct vs Regular Mutual Fund

What is the difference between direct and regular mutual funds?

The main difference between these types of schemes is that in direct mutual funds, there is no intermediary and, therefore, no commission. However, regular funds have an intermediary and a commission, which ultimately increases your expense ratio.

 

Additionally, with regular funds, you get the help of financial advisors who can help you manage your investment and make the most of it. 

How to decide between a direct plan vs a regular plan?

The choice between regular and direct mutual fund plans depends on a few factors. One of these is the role of a financial advisor and whether you need their help. If you don’t, you can opt for a direct plan. 

 

Additionally, you should go for a direct plan when you want to have a minimum expense ratio. However, if you need the expertise of a financial advisor and can manage the increase in expense ratio, choose a regular plan.

How to identify if it is a direct or regular mutual fund?

You can identify whether it is a regular or direct mutual fund scheme by looking at the name. The name will generally have ‘Direct’ or ‘DIR’ if it is a direct scheme. The name will have ‘Regular’ or ‘REG’ if it is a regular scheme.

 

You can also look at the expense ratio, as direct plans generally have a lower ratio when compared to regular plans. Lastly, you can check your investment account statement to see the details of the financial advisor. Direct funds do not have a financial advisor, so there will be no information about it in the account statement.

Can I shift from a regular mutual fund to a direct mutual fund plan?

Yes, you change your investment from a regular scheme to a direct scheme. The procedure for the same will depend on the AMC you invest with. However, remember that the shift may be taken as redemption and, therefore, may be subject to an exit load.

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