Direct Mutual Funds Vs Regular Mutual Funds

Considering different investment needs, the Securities and Exchange Board of India (SEBI) come up with the idea in the year 2012 to categorize the mutual funds into two – direct mutual funds and regular mutual funds. The scheme came in effect from January 2013. The only key difference between both the plans was the method of investment. While in a direct plan, an investor is free to buy shares and securities directly from the mutual fund company; whereas a regular plan involves a broker, advisor, or distributor to do the same. As regular mutual funds involve the payment of commission to the intermediary; direct plans are considerably cheaper.

Direct Mutual Funds Vs Regular Mutual Funds:

Most investors are of belief that cheaper mutual fund plans with higher returns are better, but hardly have they known that everything that glitters is not gold. Decoding the idiom in context of mutual funds, direct mutual fund plans are not always beneficial even though they eliminates the additional cost of paying commission to the intermediaries. Direct plans definitely bring down the expenses, but, they could actually put a lot of mental pressure to the investor, especially the beginners. This is because in regular plan, an intermediary takes care of the entire investment process including the buying and selling of mutual funds, but in direct plan, it is investor’s sole responsibility to buy and/or sell the mutual funds. Thus, this could sometimes result in wrong decisions due to their divided attention and low understanding of share market fluctuations.

Why is it beneficial to invest in regular mutual funds?

Regular plans are a bit costlier, but not to forget to mention that the cost is worth the investment. There are certain reasons why an expert advices to put your hard-earned money in a regular plan instead of direct plan.

Investment recommendations – First of all, as a fresher it is extremely necessary to gather a deep understanding about the market condition and its past performance. Most investors make a common mistake of indulging in the mutual funds market without having enough insights about the market fluctuations. Therefore, it is advised to opt for regular mutual funds plan to get investment recommendations for higher return probabilities. It may be noted that the difference between good and poor mutual funds could lead a major difference of 4 to 5% in returns over a period of time.

Periodic review – It is significant to keep a track of your investments and periodically review your portfolio. Moreover, your advisor would suggest measures to further improve the portfolio to maximize the returns over time.