What are Regular Mutual Funds?
Regular funds are those funds that are bought through an intermediary. These intermediaries can be distributors, brokers. The intermediaries typically charge the fund house a specific fee for selling the mutual funds through their platform. The AMCs usually recover this fee through expense ratio. This is why the expense ratio for regular mutual funds is comparatively higher than that of direct mutual funds. A regular plan is suitable for investors who need to gain knowledge about the market and the time to monitor their portfolio. Therefore, a regular plan is much more convenient for investors who need to be better informed about the market.
What are Direct Mutual Funds
Direct Mutual Funds are the type of mutual fund directly offered by the AMC or fund house. In other words, third-party agents are not involved – brokers or distributors. Since no third-party agents are involved, there are no commissions and brokerage. This causes the expense ratio to be lower. Thus, the return is comparatively higher. You can buy these mutual funds from either offline or online mode.-
Difference between Regular & Direct Mutual
Funds
- Investment Returns: Direct mutual fund offers a comparatively higher return due to the difference in the expense ratio, as there are no intermediary charges involved. Therefore, direct mutual funds can potentially help you generate more investment returns.
- Intermediary Charges: : In a regular mutual fund, a commission or brokerage for sales is paid for the sale of the mutual fund, Whereas no sales commission is charged in the case of a direct mutual fund, making it more convenient for investors.
- Professional Assistance: A regular mutual fund provides you with services from professional managers to pick and manage the funds in your portfolio. Direct mutual funds do not offer any such services to the investors, so they have to keep track of their portfolios regularly.
- Suitability: Choosing the right mutual fund is more challenging than it seems. You must understand your investment goals, availability of time and risk tolerance. Only then you can choose a mutual fund that matches your investment goals. Direct mutual funds are suitable for those who have the required knowledge and experience in investing. On the other hand, investors who don't have the time or knowledge may opt for a regular scheme of mutual funds.
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How To
Recognize a Regular or Direct Mutual
Fund Scheme?
It is essential to know which plan you are choosing to invest in. It is usually considered that if you invest through the AMC, the fund will always be a direct mutual fund. However, that's not the case. Whether you are investing through an intermediary or even the AMC, both types of schemes are available. You can choose the type of fund you want to invest in.
The name of the scheme will always include the words 'Regular' or 'Reg' to indicate a regular plan. Similarly, in the case of a direct fund, the fund name will have 'Direct' or 'Dir' in the name.
You can also identify the type of scheme by comparing the expense ratios of the mutual funds. Alternatively, you can also refer to your consolidated account statement (CAS). If the scheme is a regular plan, then 'ARN' followed by a number will be mentioned in the CAS.
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Which one is
a better choice?
There is no clear better choice among the two types of mutual fund schemes. It all depends on the individual investors and their needs, as the professional fund manager handles both- direct and regular mutual funds. Both schemes also invest in the same stocks and securities.
Opting for a direct mutual fund is a good deal if you are a well-informed investor with experience investing in the market. However, if you are a beginner and need assistance from professionals to choose the right mutual fund, then choosing a regular mutual fund may be beneficial. It may save you plenty of time to plan your finances, understand your risk tolerance and help you to choose the right fund which suits your requirements.
Summing up, As an investor, you must be aware of the pros and cons of investing in regular and direct mutual funds. If you are a beginner, you may start your investment journey by investing in a regular mutual fund, and when you gain experience and knowledge in the stock market, you may switch to a direct mutual fund. Before making any investment decisions, it is crucial to conduct proper research and wisely invest your hard-earned money.
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Disclaimer: The views expressed herein are based on internal data, publicly available information and other sources believed to be reliable. Any calculations made are approximations, meant as guidelines only, which you must confirm before relying on them. The information contained in this document is for general purposes only. The document is given in summary form and does not purport to be complete. The document does not have regard to specific investment objectives, financial situation and the particular needs of any specific person who may receive this document. The information / data herein alone are not sufficient and should not be used for the development or implementation of an investment strategy. The statements contained herein are based on our current views and involve known and unknown risk and uncertainties that could cause actual results, performance, or event to differ materially from those expressed or implied in such statements. Past performance may or may not be sustained in the future. LIC Mutual Fund Asset Management Ltd. / LIC Mutual Fund is not guaranteeing / offering / communicating any indicative yield on investment made in the scheme(s). Neither LIC Mutual Fund Asset Management Ltd. and LIC Mutual Fund (the fund) nor any person connected with them, accepts any liability arising from the use of this document. The recipients before acting on any information herein should make his/her/their own investigation and seek appropriate professional advice and shall alone be fully responsible / liable for any decision taken on the basis of information contained herein.
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