All mutual fund schemes come with two types of plans – direct plan and regular plan. The key difference between direct and regular mutual funds is the former entails direct investment via the AMC (Asset Management Company) while the latter calls for investments via third-party entities.
So, before investing in mutual funds, it is important that you know the differences between regular and direct mutual fund schemes so that you can make an informed decision while investing. Let’s dive in!
In direct mutual funds plans, investors purchase fund units directly from the AMC (Asset Management Company). There are no third-party entities involved in the transaction. The direct plan of a mutual fund will have a separate NAV (Net Asset Value) from its regular plan.
Since there are no third-parties involved, you don’t have to pay any additional commission or fee while purchasing mutual fund units. This lowers the total expense ratio of your mutual fund scheme and lets you utilise a large portion of your investment corpus efficiently.
However, since investing in direct mutual fund schemes requires considerable research, mostly seasoned investors prefer such plans.
When investors purchase a scheme via third-party entities such as mutual fund distributors, brokers and bankers, it is referred to as a regular plan. The intermediary receives a distribution fee and commission from the AMC, which is incorporated into the plan.
As a result, the regular plan of a mutual fund has a higher expense ratio compared to the direct plan. This raises the overall cost of the fund. The main advantage of regular plans is that intermediaries advise investors on which schemes to opt for and help them with the entire investment process.
Refer to the table below to understand the key differences between direct and regular mutual funds:
Parameters | Direct Plan | Regular Plan |
Investment | Investors directly invest in a plan of a fund house | Investment is made through third-party intermediaries |
Expense Ratio | Lower (Investors don’t have to pay brokers/agents) | Higher |
NAV | Higher | Lower |
Returns | Higher | Lower |
Market Research | Investor conducts the market research and makes investment decisions | The mutual fund distributor/broker/banker conducts the market research |
The answer to this depends on your expertise as an investor and your investment goals. The most crucial distinction between regular vs direct mutual funds is that direct plans have a lower expense ratio compared to regular plans as investors don’t have to pay fees to the intermediary. The NAV of a direct plan is also higher than regular plans. However, it should not be the sole factor guiding one’s investment decision.
Experienced investors who wish to deal directly with the fund house should opt for direct plans. But, investors who have just started out and wish to seek the guidance of distributors/brokers and other intermediaries may want to invest in a regular scheme.
These experienced investment advisors help investors choose the right funds depending on their risk appetite and investment goals and help with making investment decisions.
So, the decision to choose between direct and regular mutual funds depends on your risk appetite and how much research you are willing to do for your investments.
Here are some of the main benefits of investing direct mutual fund plans:
Here are some of the main benefits of investing direct mutual fund plans:
Regardless of the differences between direct and regular mutual fund plans, you must make a pick based on your capability to shoulder risk, among other factors. If the cost of funds matters to you, you could go for direct plans.
Similarly, if you think that you need suggestions based on your investment goals, you could go for regular plans. Either way, your main goal should be to invest in the right fund, diversify your portfolio and think long-term.
Happy investing!
Ans: Only the investor is responsible for conducting the necessary market research before investing in a direct mutual fund, as no third parties are involved. Conducting thorough market research for a regular plan is the responsibility of third-party entities such as mutual fund distributors/bankers/brokers.
Ans: Investors don’t have to pay commissions to brokers for investing in direct plans because they deal directly with the fund house. However, investors who opt for regular mutual funds have to pay brokerage or commission because they have availed the services of mutual fund distributors/brokers/bankers.
Ans: Generally, financial advisors advise their clients about which scheme to invest in to get the best returns for their financial objectives. But, when it comes to a direct plan, only the investor is responsible for choosing and investing in a particular mutual fund. Financial advisor as such. Accordingly, the role of a financial advisor in such a plan is very limited.
Ans: TER (Total Expense Ratio) refers to the total expenses involved in managing a mutual fund. It is calculated as the average NAV of a mutual fund scheme. The difference in the TER of a regular and direct plan generally ranges from 0.5% to 1%. TERs of direct and regular plans are disclosed in the monthly fund fact sheets published by the scheme.
Ans: Investors can change plans by sending a request to the fund house. But, the switch will be treated as a normal redemption.
So, if someone wishes to switch within the exit load period, he/she has to pay the exit load. If someone changes plans after the exit load periods, there won’t be any charges. Switching from regular to direct plans will also have tax consequences.
Want to put your savings into action and kick-start your investment journey 💸 But don’t have time to do research? Invest now with Navi Nifty 50 Index Fund, sit back, and earn from the top 50 companies.
Disclaimer: Mutual Fund investments are subject to market risks, read all scheme-related documents carefully.
This article has been prepared on the basis of internal data, publicly available information and other sources believed to be reliable. The information contained in this article is for general purposes only and not a complete disclosure of every material fact. It should not be construed as investment advice to any party. The article does not warrant the completeness or accuracy of the information and disclaims all liabilities, losses and damages arising out of the use of this information. Readers shall be fully liable/responsible for any decision taken on the basis of this article.
Mutual Funds
15 Best Multi Cap Funds to Invest in India (February 2023)
Multi-cap mutual funds are the kind of funds which invest their corpus in stocks of large-cap, mid-... Read More »Mutual Funds
Index Fund – Types, Benefits, How does It Work and How to Invest in 2023
What is Index Fund? An index fund is a passively-managed mutual fund with a portfolio built to t... Read More »Mutual Funds
15 Best Small Cap Mutual Funds to Invest in India (February 2023)
Small cap mutual funds are open-ended equity funds that invest primarily in stocks of small cap com... Read More »Mutual Funds
Best Large and Mid Cap Funds to Invest in India 2023 – Taxation and Returns Calculator
Large and mid-cap funds are open-ended mutual funds that invest in stocks of large-cap and mid-cap ... Read More »Mutual Funds
15 Best Monthly Income Scheme in India 2023
What is a Monthly Income Scheme? Monthly Income Schemes (MIS) or Monthly Income Plans, are usual... Read More »Mutual Funds
15 Best Balanced Advantage Funds in India to Invest in February 2023
Balanced advantage funds (BAFs) are hybrid mutual funds that invest in equity and debt instruments.... Read More »Mutual Funds
15 Best Hedge Funds in India to Invest in February 2023
Hedge funds are privately pooled investments that ‘hedges’ or reduces market risks and uses var... Read More »Mutual Funds
10 Best Gold ETFs to Invest in India in February 2023
Gold ETFs or Gold Exchange Traded Funds are passively managed funds that track the price of physica... Read More »Mutual Funds
15 Best Mid Cap Mutual Funds in India to Invest in February 2023
A mid cap mutual fund is a type of mutual fund that invests in the stocks of mid-cap companies. As ... Read More »Mutual Funds
20 Best Equity Mutual Funds in India to Invest in February 2023
Equity funds are mutual funds that primarily invest in stocks and shares of companies across market... Read More »Mutual Funds
10 Best International Mutual Funds in India (February 2023)
International mutual funds are a type of mutual fund that invest in companies that are not listed o... Read More »Mutual Funds
20 Best Index Funds in India to Invest in 2023 (Updated on 31st Jan)
What is an Index Fund? An index fund is a type of mutual fund or exchange-traded fund (ETF) that... Read More »Mutual Funds
Top 10 Chit Fund Schemes in India in 2023
Chit funds are one of the most popular return-generating saving schemes in India. It is a financial... Read More »Mutual Funds
10 Best Gold ETFs to Invest in India in February 2023
Gold ETFs or Gold Exchange Traded Funds are passively managed funds that track the price of physica... Read More »Mutual Funds
Top 10 Demat Accounts in India [Lowest Brokerage Charges]
A Demat account was created to eliminate the time-consuming and inconvenient procedure of purchasin... Read More »Mutual Funds
20 Best Index Funds in India to Invest in 2023 (Updated on 31st Jan)
What is an Index Fund? An index fund is a type of mutual fund or exchange-traded fund (ETF) that... Read More »Mutual Funds
Best Arbitrage Mutual Funds to Invest in India: Returns and Taxation
Arbitrage funds are hybrid mutual fund schemes that aim to make low-risk profits by buying and sell... Read More »Mutual Funds
Best SIP Mutual Funds To Invest In India (2023) – Its Types And Taxation
A Systematic Investment Plan (SIP) is a convenient way to invest a fixed sum in mutual funds. For i... Read More »Mutual Funds
10 Best Corporate Bond Funds in India 2023 – With Returns
Corporate bond funds are debt funds that invest at least 80% of the investment corpus in companies ... Read More »Banking
10 Best Banks for Savings Account in India (2023)
A savings account keeps your money safe, and lets you earn interest every quarter. There are many b... Read More »All information is subject to specific conditions | © 2023 Navi Technologies Ltd. All rights are reserved.
Start Small. Dream Big.
Start your Investment Journey with just ₹10