Embarking on your investment journey can be an exciting yet overwhelming experience, especially regarding mutual funds. As an investor, you have two paths to consider: regular mutual funds and direct mutual funds. These options may seem similar at first glance, but they possess distinct characteristics that can significantly impact investment outcomes.

What are regular mutual funds?

When buying regular mutual funds, also called regular funds or regular plans, people usually go through intermediaries such as brokers, agents, or financial advisors. These intermediaries are essential in facilitating the buying and selling process, and they often receive a commission or fee for their services. 

Thus, the expenses associated with regular mutual funds include the management fees of the fund and the distribution fees paid to the intermediary.

What are direct mutual funds?

Direct mutual funds allow you to bypass intermediaries and directly invest in the mutual fund scheme of your choice. Investing in direct funds can be done through various channels, such as the mutual fund company’s website, online platforms, or offline channels provided by the asset management company. 

Direct mutual funds are to minimise costs and offer investors potentially more significant returns by eliminating intermediaries.

The key differences between regular and direct mutual funds

• Expense ratio: Direct mutual funds have a lower expense ratio than regular mutual funds as they eliminate intermediaries. With lower expenses, more of your investment is utilised for generating returns.
• Returns: Direct mutual funds offer comparatively higher returns due to the lower expense ratio and absence of distributor commissions. This lets you capture a larger portion of the fund’s performance, creating enhanced wealth.
• Investment process: Direct mutual funds involve a self-directed approach, giving you greater control and involvement in the investment process. Regular mutual funds rely on intermediaries such as brokers or distributors who provide guidance and support throughout the investment journey.
• Research and analysis: With direct mutual funds, you are responsible for conducting your research and analysis. Regular mutual funds benefit from intermediaries’ expertise, providing research insights and recommendations based on market knowledge and experience.
• Transparency: Direct mutual funds offer higher transparency as you deal directly with the AMC. You can access detailed information about the fund’s holdings, performance, and expenses. Regular mutual funds may need more visibility due to the involvement of intermediaries.
• Cost of investing: Direct mutual funds have a clear advantage in terms of cost as they eliminate distributor commissions and associated fees, resulting in lower overall costs. Regular mutual funds incur additional expenses passed on to investors.
• Long-term wealth growth: Direct mutual funds can significantly contribute to long-term wealth growth. With lower expenses and higher returns, more of your investment is working towards compounding over time. Regular mutual funds may result in slightly lower returns due to higher expenses.

Factors	Regular mutual funds	Direct mutual funds
Expense ratio	Higher, due to distribution fees	Lower, as there are no distribution fees
Returns	Relatively lower	Potentially higher
Investment process	Indirect, through intermediaries	Direct, without intermediaries
Research and analysis	Dependent on intermediaries	Personal responsibility of the investor
Transparency	Limited	Higher, with direct access
Cost of investing	Higher, due to intermediary charges	Lower, with no intermediary charges
Long-term wealth growth	Affected by higher expenses	Potential for better growth

To wrap up

Choosing between direct and regular mutual funds depends on individual preferences and investment goals. Consider your priorities and conduct thorough research to make an informed decision that aligns with your financial aspirations.