Direct Vs Regular Mutual Funds – Key Difference

There are two types of investments in every Mutual Fund Scheme launched by Asset management Companies (AMCs) which register with SEBI and monitor by AMFI –

a)      Direct

b    Regular

    

A Direct plan introduced in 2012 by SEBI, is what you buy MF Schemes directly from the AMCs Fund house website whereas as Regular plan is what you buy through an ARN registered Distributor whom they receive Commission from AMCs. This commission is added to the Total Expense Ratio (TER) which is adjusted from the daily NAV of your Scheme. Difference in TERs between regular and direct plans can range from 0.5% to 1%. In other words, the investment value of your regular mutual fund schemes, at any point of time includes the commissions paid to the distributor.

 The Expense Ratio is the fund’s total expenses to its Assets under Management (AUM) i.e. ratio of cost of managing a fund is to its annual revenues.  Managing a MF scheme entails costs and expenses like sales & distribution, advertising costs, broker commissions, custodian & registrar fees, marketing, etc. such expenses are within the limits prescribed by the SEBI.

Mutual Funds Types	Direct	Regular
MF scheme units	Buy directly through AMC website using PAN and Sell by visiting nearest Fund House Branch / some through online providing Bank details.	Buy / Sell instantly via Intermediaries by submitting KYC once to RTA / AMCs.
Third party agents	- No -	Distrbutors, Brokers & Advisors
Net Asset Value (NAV)	High Premium	Low Premium
Total Expense Ratio (TER)	Low %	High%.
Portfolio Diversification	No. Only schemes of particular AMC can be seen.	Yes. You can see all AMCs Schemes at one place.
Expert Advisory Services	No. Do It Yourself (DIY)	Yes. Relationship Manager will be assigned.
Return Type	Nominal	Real
Risk & Benefits	Based on your own research which is more Risk associated in where to invest and how long.	Well-researched PMS from Fianacial Advisors team. Less Risk oriented.

Advantage in Regular investment than Direct: 

Despite the expense ratio being little more in Regular funds, the overall portfolio returns would be higher in regular funds due to the advisor’s continuous monitoring and rebalancing your portfolio through Portfolio Management Service (PMS) by professional fund managers to generate higher returns.

Investors who can do their own research by allotting their time and gain knowledge on Mutual Funds based on their Individual Financial Goal can consider investing in direct plans.

NAV is the current market value at which each unit of a fund sells. As an investor, you pay an amount equal to the NAV to purchase units from the fund. It is also the price at which units can be redeemed when you exit the fund upon maturity.

The nominal rate of return is the market rate of interest while the real rate of return is an adjusted and realized rate of interest. The real rate of return adjusts profit for the effects of inflation. It is a more accurate measure of investment performance than the nominal rate of return. Bank loans and interest rates are nominal rates of return while the real rates are derived from the nominal rates.

Few Investors resort to Zerodha, Groww, Upstox, etc., as they are offering Direct Funds, but in reality you will see less no. of Units when you made a purchase in MF Schemes on their portal and they will not assign you any advisors to manage your portfolio. They are also Distributors /Brokers. Why do you they suggest without commission! No Free Lunch.

                                            No. of Units = Amount Invested / Current NAV

Always invest in Regular funds through distributor platform to achieve your Financial goal with the help of Advisor.

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