Sanskriti Shrivastava is an MNC professional who was recently promoted to the post of Manager. She acquired all her financial goals and now wants to grow her funds. She has been advised to invest in mutual funds. The confusion she is facing is whether to invest in Direct Mutual Funds or Regular Mutual funds.
A Financial Advisor clarifies to her that if you buy a plan through an intermediary, a broker, or a financial advisor, it is known as a Regular plan. However, if you buy a plan directly from the mutual fund company
or their website it is known as a Direct plan. But the question is still not answered for Sanskriti as well most of us as to where should we invest?
Difference between regular and direct mutual funds
Both the options are the same, they invest in the same assets and are handled by the same mutual fund manager.
The major difference is when you buy a regular plan from an intermediary, the mutual fund company pays commission to the intermediary and that amount is recovered as an expense from the plan. Whereas if you buy directly from the mutual fund company you don’t need to pay an extra amount.
As a result of which, Regular Mutual Funds are a bit more expensive than Direct Mutual Funds. Hence, the returns of Direct Plans are higher.
Which Option is Better?
According to Investment Planners, this decision is based on what suits you best.
For example, if you have no knowledge about the market, the risks involved, or what are your financial goals, then Regular Mutual Funds will be convenient. Financial Advisors have the expertise to know what mutual fund plan suits you best, will monitor the market for you regularly, will keep a record of your investments, will help you provide tax proofs during tax filing, modify the plan if required, etc. for a nominal fee.
But if you want to avoid the expense of the fee, you can invest in Direct Mutual Funds. You should prepare yourself to learn to research and gain knowledge about mutual funds.
In Direct plans, you would be required to handle the application process, portfolio review, documentation, track of the trends, and manage compliance issues. No doubt that the returns in the Direct plan are higher than the Regular plan.
According to the Investment Advisors, Fincart, the difference between Regular Mutual Funds and Direct Mutual Funds is based entirely on what suits you best. If you are able to monitor your own portfolio and want to increase your returns, a direct plan is for you. But if, like Sanskriti, you are struggling with the details of the mutual fund
investment, a Financial Advisor is your best option at a very nominal fee
Also Read: Best Investment Plans To Invest in India