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Direct VS Regular Mutual Fund

Back in the year 2012, SEBI had come out with a number of reforms which included the introduction of direct plans in mutual funds. With effect from January 2013, every mutual fund comes with two options: A regular plan and direct plan. There are just two options of the same mutual funds, managed by the same fund manager who invest in same bonds and stocks. The only difference between these two is, in case of a regular fund your mutual fund house pays a commission to the broker/agent as a distribution fee whereas, in case of a direct plan, no such fees/commission is paid.

Difference Between Direct VS Regular Mutual Fund

ParameterRegular FundDirect Fund
Difference in returnsThe returns are comparatively lower in case of direct plans.The direct plan of mutual funds gives higher returns than the regular funds as they do not include broker fees. Additionally, the returns keep compounding.
Value add of the advice A professional financial advisor can help you to understand and manage your funds more efficiently.You do not get a professional and personal advisory. However, you can do your own research and understand funds well-enough.

Here is a comparison between returns form the direct and regular mutual funds for SBI Bluechip funds. For simplicity, we have taken an initial investment of Rs. 10,00,000 in this illustration.

DirectRegularDifference
Initial investment amount8.15Rs. 10,00,0000
Investment tenure5 years5 years0
Average 5-year return20.34 %19.24 %1.1%
Final return amountRs. 25,23,771Rs. 24,10,515Rs. 1,13,256

Why Invest in a Direct Plan of a Mutual Fund?

Direct plans are good for those who wish to invest in mutual funds schemes directly dealing with the fund without any intermediary. Fund Managers can generate better returns by reducing their expense ratio. The commission when removed increases returns over the long-term.

In case of direct mutual fund plan, investors are advised to do their own market research and select top-performing mutual fund schemes. The investors can do the analysis by reaching out to mutual fund websites and blogs to know more about the suitable mutual fund schemes.

Direct plans work best for those who want to increase their returns by investing directly through the fund and can manage the documentation on their own. While the process may look a little complex in the initial stage, it should be comfortable while investing in further schemes.

Why Invest in a Regular Plan of a Mutual Fund?

Professional financial advice is essential and can make a huge difference to returns. If you invest in a regular mutual fund, the advisors can help you to understand and manage your investments more effectively.

Performance of mutual funds varies often, and the choice of fund is critical. A good mutual fund advisor can help you select a good fund that could lead you to a difference of as much as 4 to 5% in return over a period of time.

A financial advisor can help you review your portfolio and rebalance the same. You can also save your time and effort as many people simply won't keep a regular track which in return results in reduced yields.

Benefits of Investing in Direct Mutual fund

The only difference between direct plan and the regular plan is the expense ratio. Scheme characteristics such as investment objective, underlying portfolio, asset allocation pattern, risk factor, investment strategy, risk factors, facilities offered terms and conditions including the exit load structure are same for both types of the fund.

When you invest through a regular plan, the mutual fund houses include the commission that they need to pay to the distributors for getting them the business. These commissions generally range between 0.8 to 1.5% annually. These are transferred to the investors by reducing their mutual fund NAV. The effective and smart choice is to opt for a direct plan. With direct mutual fund plan, you are investing directly with the fund house without paying hefty commissions to the distributors. You can enjoy 100% of the benefits of your investments that could lead to a massive difference over a period of time. In case of direct plans, lower charges are translated into higher returns. The regular plan of Axis long-term equity has announced an annual return of 40.4% whereas the direct plan for the same fund has delivered 42.2% yearly return. Investors must not underestimate the impact of this difference. Even a difference of 1% can be a huge gap with the compounding effect in the long-term.

Benefits of Investing in a Regular Mutual Fund

While direct plans are cheaper, low cost should not be the only criterion for selecting a fund. An advisor can help you to analyse the track record, matches your risk profile and invests your money in a fund which is suitable for your goal you are investing for. Corporate houses have dedicated finance teams, so it is easy for them to select the right fund. However, retail investors need guidance. Their need is met by the distributors and advisors.

FAQs on Direct VS Regular Mutual Fund

Can I buy a direct mutual fund through a demat account?

You cannot invest in direct mutual funds through a demat account. When you route mutual fund transaction through broker/intermediary, the mutual fund pays a commission to the broking house for its service. For this reason, intermediaries who manage your demat account, do not provide direct mutual fund plans.

Can I increase my SIP amount in regular funds?

You can increase your SIP amount in regular funds periodically. Fund houses allow you to increase your monthly investment amount either every six months or on a yearly basis. However, it should be specified in the beginning. You can apply for a top-up at the time of applying for SIP.

Can I invest directly in mutual funds?

Yes, you can invest directly in mutual funds. Direct mutual fund schemes are those where mutual fund houses or AMCs do not charge any distributor expenses, and that is added to your investment balance.

How can I buy a mutual fund direct plan?

The easiest way to invest in the direct mutual fund is through online portals. You need to visit the AMC website and follow the instructions. These are the platforms through which you can directly invest in mutual fund schemes. Some platforms are free of cost.

How can I invest in mutual funds through SIP online?

Investing in mutual funds is not a difficult task even if you choose to invest online.

  • Step 1: Search out the list of online platforms
  • Step 2: Understand the regular vs. direct mutual fund plan. Choose a platform that suits your needs, and you are comfortable with their services and offerings.
  • Step 3: You can complete the KYC via Aadhar card. With a one-time password you can invest in mutual funds up to Rs. 50,000 per year per mutual fund company. In case you need higher limits, then you need to do a full KYC. You will need to complete some paperwork to do this.
  • Step 4: Complete your registration with the chosen platform.
  • Step 5: Choose the mutual fund scheme you want to invest in as per your risk ability.
  • Step 6: Once you choose the scheme, make the payment. Most platforms in online spaces use RTGS/NEFT to receive the payment.
  • Step 7: Login to your account regularly to view the performance.

How do I buy mutual funds directly?

If you wish to invest in mutual funds directly, you can go to its fund house website and purchase the mutual fund units online. Once your KYC is completed, you may follow the below-listed steps.

  • Step 1: Register your account with the mutual fund company.
  • Step 2: Select the desired scheme and investment details.
  • Step 3: Make the payment
  • Step 4: Verify and complete the transaction.

How do I close a sip mutual fund?

You can close your SIP mutual fund by following a few simple steps. Redemption if purchased through AMC or distributors: You need to send a duly signed closer/redemption request to the AMC or the distributor’s office. The proceeds from redemption will be credited to your registered bank account. Redemption if bought online: You simply have to log in to the official fund website, select to close or redeem the mutual fund account and confirm the request. The proceeds from redemption will be credited to your registered bank account.

How do I convert mutual funds to direct?

Online: Login to your mutual fund account, visit the transaction page where you can buy, redeem or change your fund. Select the “switch” option then click on the respective fund name. It will have a “Direct plan” option. The system will take 4 working days to reflect the changes in your account.

Offline: You can visit the nearest fund house branch and request a switch form. Enter all the relevant details. Once your application is processed, they will send you an updated account statement. This can also be done via your intermediary.

How do I direct invest in mutual funds?

You can directly invest in mutual funds online by visiting the mutual fund company's website. If you wish to invest in mutual fund through an offline channel, you will need to visit the branch of the mutual fund company to buy directly.

How do I invest in direct funds?

You have three options to invest directly in mutual funds.

  • Option 1: Invest in direct plans from the official website of the mutual fund house.
  • Option 2: Invest in direct mutual funds through the registrar and transfer agents.
  • Option 3: You can buy direct mutual funds through mutual fund utilities.

What are growth mutual funds?

Growth mutual funds primarily invest in growth stocks. These stock companies are expected to grow at a faster rate compared to the overall stock market.

What is a direct mutual fund?

In case of a direct mutual fund, there is no broker or intermediator. You can purchase mutual fund units directly from the mutual fund houses. There is no fee or commission paid to the broker or intermediary.

What is the difference between direct and regular plan in mutual funds?

A direct mutual fund plan is what you buy directly from the mutual fund house whereas, a regular plan is what you buy from an advisor/broker/distributor. In case of a regular plan, the mutual fund company pays commission to the intermediary.

What is the difference between growth and direct growth?

Growth means investing in growth option through a regular plan, while direct growth means investing in growth option scheme through a direct plan.

What is the difference between growth and dividend plan?

Mutual fund companies offer two kinds of schemes: Growth and dividend. In case of growth option, the profit made by the scheme is invested back into it. Dividends are declared only when the scheme makes the profit.

What is Direct Plan growth option?

Mutual funds come with two plan option: Regular and direct plan, whereas, each type comes with two different scheme options: Growth and dividend. When you buy a direct plan with a growth option, it is called direct plan growth option.

What is redeem in a mutual fund?

Redeem is the sale of units in a mutual fund.

What is a regular and direct plan in mutual funds?

Mutual fund schemes offer two types of plans: Regular and direct. A regular plan involves investing in mutual fund through broker or intermediary. It has a higher expense ratio because of the commissions paid to the intermediaries. In case of a direct plan, there is no third party, and you purchase mutual fund units directly from the mutual fund houses.

Which is a better dividend or growth option?

A mutual fund with growth option is better as it allows the fund company to reinvest the money which will result in increasing the NAV (Net Asset Value) of the mutual fund over a period of time.

Which is better growth or dividend in mutual funds?

A mutual fund with growth option is better as it allows the fund company to reinvest the money which will otherwise payout to the investors in the form of dividends. The growth option will increase the Net Asset Value of the mutual fund over a period of time.

Which mutual fund is better to direct or regular?

Direct plans are the best for those who want to increase their mutual fund returns by investing directly through AMC. Whereas, the regular plan is suitable for those who do not have enough market knowledge and need advice and a regular review on their investment.

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