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Apply NowFew investment instruments have struck a chord with investors like mutual funds. The flexibility to start small and use compounding is central to mutual funds' success, with investors pouring in thousands of crores through SIPs (Systematic Investment Plan). While mutual funds are a worthwhile investment option, investors must understand key concepts to get the best out of them. One of the essential aspects to consider with mutual funds is direct vs regular mutual funds.
As its name indicates, a direct fund helps investors directly invest in a mutual fund scheme by contacting the asset management company (AMC) or mutual fund house directly. As is evident, no intermediary is involved in buying a direct plan from a mutual fund house. On the other hand, a regular fund's purchase happens through an intermediary. They can be purchased through brokers, advisors, banks, or distributors.
It has been observed consistently that an AMCs direct fund plan offers higher returns as compared to a regular fund plan. It is mainly due to the additional fee charged by intermediaries, who handle mutual funds investments and provide.
A direct fund's NAV is lower, allowing investors to purchase more units. Whereas a regular fund's NAV is higher, owing to the mutual fund distributor's commission.
The intermediary in a regular fund charges a fee from the AMC to render distribution service. The fee gets added to the total expense ratio of the mutual fund.
An important point to be kept in mind is that both direct and regular funds serve the same purpose despite catering to different types of investors. A mutual fund scheme, today, is just as popular an investment scheme as a fixed deposit (FD). Salaried employees and self-employed professionals generally do not have the time to track the market regularly and lack the required expertise to yield regular returns.
A regular fund is ideal for such an investor as this expertise is helpful in the long term. On the other hand, an experienced investor who tracks the market regularly can approach the AMC directly and purchase a mutual fund.
The Total Expense Ratio (TER) calculates the total costs needed to manage and operate a mutual fund. A mutual fund scheme's TER includes management fees and additional expenses such as registrar's fees, trustee fees, and marketing and distribution costs. The TER of a regular fund is always comparatively higher as it also includes agent commission.
TER rules are framed and regulated by the Securities and Exchange Board of India (SEBI). SEBI sets upper and lower limits to the TER that a mutual fund scheme can charge from investors based on different investment slabs.
There are various ways of investing in a direct or regular fund. You can invest in a direct fund online through the mutual fund's website or with online brokers. The same goes for investments in regular funds, whereby you can choose brokers, distributors, or banks such as IDFC FIRST Bank.
With IDFC FIRST Bank, you can invest in mutual funds online, avail yourself of tax benefits, and seek expert advice about your mutual fund portfolio.
Disclaimer
The contents of this article/infographic/picture/video are meant solely for information purposes. The contents are generic in nature and for informational purposes only. It is not a substitute for specific advice in your own circumstances. The information is subject to updation, completion, revision, verification and amendment and the same may change materially. The information is not intended for distribution or use by any person in any jurisdiction where such distribution or use would be contrary to law or regulation or would subject IDFC FIRST Bank or its affiliates to any licensing or registration requirements. IDFC FIRST Bank shall not be responsible for any direct/indirect loss or liability incurred by the reader for taking any financial decisions based on the contents and information mentioned. Please consult your financial advisor before making any financial decision.
The features, benefits and offers mentioned in the article are applicable as on the day of publication of this blog and is subject to change without notice. The contents herein are also subject to other product specific terms and conditions and any third party terms and conditions, as applicable. Please refer our website www.idfcfirstbank.com for latest updates.