- Date : 16/03/2023
- Read: 3 mins
When investing in mutual funds, you can choose between regular and direct plans. Depending on your financial goals, you should choose between the two.
Direct Mutual Fund Plan vs Regular Mutual Fund Plan
A mutual fund is an investment- vehicle that pools money from many investors to purchase stocks, bonds, and other securities. Mutual funds are of two types- Direct mutual fund Plans and Regular mutual fund Plans. Investments in mutual funds can help to build portfolio and increase savings. But how to choose the right plan for your needs?
- Direct MF plan: A direct mutual fund plan allows investors to purchase units of mutual fund schemes directly from the asset management company (AMC) instead of through a distributor or registered investment advisor.
Direct plans offer higher returns due to lower expense ratios and are commission-free to mutual fund distributors. As a result, direct plans are ideal for investors who are comfortable investing without the assistance of an intermediary and have a good understanding of the mutual fund market.
These plans also suit investors with a longer investment horizon and those who do not require advice from a financial advisor. In addition, direct MF plans may offer attractive benefits such as tax savings and easy access to dividends and redemption proceeds.
- Regular MF plan: Mutual fund plans that are purchased through an agent are known as regular plans. Brokers, consultants, and distributors are some examples of these mediators.
Regular mutual funds have a somewhat higher expense proportion than direct mutual funds. Which is why the returns tends to vary somewhat larger than direct plans. Individuals who lack the market expertise or the time to keep an eye on their portfolios seem to be especially suitable for regular plans.
Hence, for investors who are not really familiar with the market, a regular plan becomes far more practical. People pay a small charge to receive professional advice.
Direct MF Plan Vs. Regular MF Plan: What Should You Choose?
The main difference is that direct mutual fund plans have no intermediary fees, such as broker fees or commissions. This means that investors with direct mutual fund plans pay a lower expense ratio, the percentage of an investment’s total return deducted for expenses and fees, which results in higher returns than regular MFs. In addition, some direct mutual fund plans offer benefits such as access to additional investment options, lower minimum investment amounts, and higher dividend payouts.
Choosing a direct mutual fund plan over a regular one should be based on an investor’s circumstances. For example, someone with a small amount of money may be better off with a direct mutual fund plan, as it offers lower minimum investment amounts. Additionally, investors who want to benefit from lower expense ratios may prefer direct mutual fund plans. On the other hand, people new to investing or not comfortable managing their investments can choose to work with a broker or financial advisor who can provide personalised advice on which investments to make.
Also Read: Active vs Passive Funds
When choosing between a regular or direct plan in a mutual fund, the best one for you will depend on your financial objectives and current situation. For example, how much do you have to invest? What are your expectations on returns? Do you have enough experience to negotiate the financial market on your own? Depending on the answers to these questions, you will have a clearer idea of which MF plan is better for you.