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Mutual funds are popular investment options among investors. They can effectively create wealth, and when it comes to investing, they offer two choices – direct and regular mutual funds. Understanding the key differences between these options is vital for making informed investment decisions. In this blog, we’ll compare the two. Let’s look at direct mutual fund solutions.
Direct Mutual Fund
These plans are purchased directly from the AMC. They are designed for investors who prefer not to use intermediaries while investing. Direct plans can be obtained directly through the AMC’s website or any mutual fund investment platform.
Regular Mutual Fund
Regular mutual funds are acquired through a mutual fund distributor. In these plans, mutual fund distributors or financial advisors facilitate investments in mutual funds. MFDs provide insights, information, and assistance while leveraging mutual fund management software.
Mutual fund distributors offer services such as advising investors, submitting their documents to the Registrars and Transfer Agents (RTAs), and ultimately assisting investors with the investment process.
What are the 9 reasons compelling MFDs to use mutual fund software? Read here to know them.
Difference between Direct and Regular Mutual Fund Solutions
| Parameters | Direct Plans | Regular Plans |
| Expense Ratio | They have a lower expense ratio since no fees need to be paid for MFD services. | In comparison, they have a higher expense ratio. Investors pay for the professional services provided by the MFDs. |
| Professional Management | Investors are required to conduct their own research and make their own investment decisions. | Regular plans offer professional management to investors. Fund managers use their expertise to provide insights and updates. |
| Diversification | Investors may not diversify their portfolio due to a lack of knowledge and expertise. They might find it challenging to allocate their assets wisely. | Mutual fund distributors using top mutual fund software provide updates and diversify investors’ portfolios according to market corrections. |
| Emotional Bias | Due to personal biases towards a fund or company, investors may make emotional decisions that could hinder their investment goals. | In regular plans, MFDs avoid decisions based on emotional biases. They develop an investment strategy and balance risk and rewards. |
| Returns | Investors may achieve higher returns when choosing direct plans. However, if they don’t make informed decisions, their returns could be impacted. | Regular plans may yield lower returns compared to direct plans. Yet in the long term, making well-informed decisions with expert guidance, investors’ returns can potentially increase. |
| Net Asset Value | NAV can be higher in direct plans, meaning the cost of purchasing units is lower. | NAV can be lower in regular plans, meaning investors may need to purchase mutual fund units at a higher price. |
Final Thoughts
Direct mutual funds offer lower costs and potentially higher returns due to a reduced expense ratio. However, they are suitable for investors who can make informed decisions and possess expertise. In contrast, regular mutual funds provide advice, insights, and solutions regarding portfolio balancing, investment strategy, investment goals, and wealth creation. If an investor is seeking professional expertise, they can choose regular plans.
