Ruchi SrivastavaInvesting in a Mutual Fund Scheme can be a very daunting task, resulting in having a proper understanding is highly crucial. For investors, deciding between direct and regular mutual funds is a crucial choice. Each option comes with its own set of benefits, making it essential to understand their differences to align with your financial objectives.
As 2025 begins, it’s an ideal moment to explore these two investment paths, evaluate their advantages and drawbacks, and identify the one that best fits your strategy. This blog will guide you through the key distinctions to help you make an informed decision.
What are Direct Scheme Mutual Funds?
Direct Scheme Mutual Funds are investment plans that can be bought directly from the mutual fund house or Asset Management Company (AMC) without using brokers or distributors. These plans are more cost-efficient as they avoid the commission or distribution fees associated with regular mutual fund plans.
Features of Direct Scheme Mutual Funds
1. Lower Expense Ratio – Direct plans have a lower expense ratio because no commissions are paid to intermediaries. This reduction in costs can result in higher returns over time.
2. Transparency – Investors deal directly with the AMC, ensuring a clear and transparent investment process.
3. Higher Returns – Without commission fees, direct plans often deliver slightly higher returns compared to regular plans.
4. Investor Responsibility – Investors in direct plans must independently handle research, selection, and monitoring of their investments, as no advisory support is provided.
5. Accessibility – Direct plans are easily accessible via AMC websites, apps, or platforms that offer direct mutual fund options, including fintech apps.
What are Regular Mutual Funds?
Regular Mutual Funds are investment plans bought through intermediaries like brokers or financial advisors, with the Asset Management Company (AMC) paying them a commission included in the fund’s expense ratio. While this makes regular plans slightly more expensive than direct plans, they offer the advantage of expert guidance and advisory support, making them ideal for investors seeking professional assistance in managing their investments.
Features of Regular Mutual Funds
1. Intermediary Involvement – Involves brokers, distributors, or financial advisors who facilitate the purchase process.
2. Expense Ratio – Incorporates commission or distribution fees for intermediaries, leading to a higher expense ratio than direct plans.
3. Expert Guidance – Provides professional advice and support from intermediaries for fund selection and portfolio management.
4. Ease of Access – Intermediaries streamline the investment process and handle administrative formalities for investors.
5. Higher Costs – Commission fees result in slightly lower returns compared to direct mutual fund options.
6. Suitability – Ideal for investors seeking expert assistance and lacking the time or expertise to manage investments independently.
Direct Fund Vs. Regular Mutual Funds
| Feature | Direct Mutual Funds | Regular Mutual Funds |
| Expense Ratio | Lower, as no distribution commissions are paid | Higher, due to commissions paid to intermediaries |
| Returns | Higher, as expenses are lower | Lower, as commissions reduce returns |
| Control | Full control over investment decisions | Limited control, as intermediaries guide decisions |
| Investor Responsibility | Investor handles all research and decisions | Advisor or distributor helps in decision-making |
| Transparency | Greater transparency, direct dealings with AMC | May have less transparency due to intermediaries |
| Convenience | Requires active management and research by investor | Convenient, as brokers offer advisory services |
| Professional Guidance | No personalized advice | Provides personalized advice from financial advisors |
| Access to Funds | Limited to funds available directly through AMCs | May have access to a wider range of funds or exclusive products through brokers |
| Ideal for | Experienced, cost-conscious investors | Beginners, investors looking for guidance, or who prefer hands-off management |
| Ease of Investment | Requires more tech-savviness and independent management | Easier for investors who prefer personal interaction and support |
Direct Scheme or Regular Plan Which one is suitable for you?
Now that you understand the differences between direct and regular plans, it’s time to decide which one suits you better. In the past, regular plans were more popular as distributors managed most of the paperwork, including investments, redemptions, and updates.
However, with the digital transformation of the banking and financial services industry, many of these tasks are now paperless and can be completed online through apps or websites. As more people become aware of both options, an increasing number are choosing direct plans over regular ones.
Consider a direct plan if you are comfortable with online platforms and have some knowledge of how to buy and sell mutual funds independently. On the other hand, if you prefer a distributor to guide you through the documentation process, a regular plan may be more suitable for you.
How to invest in Direct Plans vs Regular Mutual Funds?
| Step | Direct Plans | Regular Mutual Funds |
| 1. Choose a Fund House | Visit the official website or app of the AMC | Locate a broker or distributor offering mutual funds |
| 2. Create an Account | Register on the AMC’s platform and complete KYC details | The distributor assists with account setup and the KYC process |
| 3. Select a Fund | Browse and select a direct mutual fund | Choose a fund based on the distributor’s advice or recommendations |
| 4. Make the Investment | Invest online using bank transfer or other payment methods | Complete an application form and make payment via cheque, online transfer, etc. |
| 5. Track Your Investment | Monitor your investment through AMC’s online platform or app | Track investment through the distributor’s platform or by reaching out to them |
| 6. Fund Confirmation | – | Receive confirmation and updates from the distributor |
Final thoughts
As the year 2025 begins, the decision to invest in direct or regular mutual funds comes down to your individual choice. Direct plans are cost-effective and ideal for investors with the knowledge and confidence to manage their investments independently. On the other hand, regular plans offer expert guidance and support, making them suitable for those who prefer professional assistance. Evaluate your requirements, weigh the options, and choose the plan that aligns with your financial goals for a successful investment journey.
Sources: msn.com
