Mutual fund investment is making a spectacular presence in the market due to its accessibility and creating wealth over time. Investors who wish to accumulate wealth in the long term can choose mutual funds. However, while investing in mutual funds, investors always face a challenge in what strategy to choose from, Regular vs Direct Mutual Funds. Although both types invest in the same underlying assets, they differ in purchasing methods, associated costs, and the amount of guidance offered.
Moreover, investors can get in touch with us at 7838077767 if they want to know more and create a future with financial freedom.
Regular vs Direct Mutual Funds
What is a Regular Mutual Fund?
A regular mutual fund is typically bought through an intermediary like a financial advisor, bank, broker, or distributor. The fund manager helps you choose the appropriate mutual fund per your needs and financial goals. They help you with all the related paperwork for mutual funds, provide comprehensive guidance, and provide your continuous support in investment. Furthermore, the fund managers charge a fee or commission for this continuous support.
What is a Direct Mutual Fund?
A direct mutual fund is purchased directly from the mutual fund company, escaping intermediaries or fund managers such as brokers or agents. This option was launched in 2013 by the Securities and Exchange Board of India (SEBI) to provide a cost-effective alternative to regular plans.
As no intermediaries are involved in direct mutual funds, investors do not have to pay the commission fees. This will reduce the additional expenses for fund managers. Moreover, investors have to take charge of their mutual fund investments, and they should be well aware and make investments after proper research.
Key Differences Between Regular vs Direct Mutual Funds
Expense Ratio
- Regular Mutual Funds: The regular mutual fund has some expense ratio. The investors must pay commissions to fund managers, which have high fees.
- Direct Mutual Funds: In direct mutual funds, investors purchase directly from the fund house. This eliminates the additional expense of the fund managers.
Returns
In Regular vs Direct Mutual Funds, the direct mutual fund has a low expense ratio, it has the possibility to yield a higher return in the long term as compared to the regular mutual fund. As you invest in the beginning, the difference might seem, but the effect of compounding will have a significant difference in return in the long term.
Guidance and Support
Since regular mutual funds have proper support and guidance from the fund managers, they are preferred by most investors. The fund advisors assist and support them in
- Choosing the right mutual fund according to the risk profile of the investor and financial objectives.
- Filing KYC requirements and completing all the required paperwork
- Portfolio restructuring and rebalancing, also providing investment guidance,
However, on the other hand, between Regular vs Direct Mutual Funds, direct mutual funds make their investment directly from the fund house; they do not get any support from the fund manager. Investors have to choose to fund themselves and they have to take responsibility for the investments.
Accessibility and Convenience
Investors who are new investors and those who 0prefer a hands-off approach usually prefer regular mutual funds since the fund manager takes care of all the tasks and makes decisions. This is an exceptional choice for investors; this will save a lot of time and give the investors the expertise of fund managers.
While in direct mutual funds, investors have to be involved directly, which requires time and effort. Investors need to research and manage their investments actively.
Regular vs Direct Mutual Funds: Which One is Better?
Making a selection between Regular vs Direct Mutual Funds depends on a number of factors, such as experience, knowledge, and preference.
Cost Efficiency
If you are in need of a cost-efficient and minimized expense on the investment, a direct mutual fund is the best option for you. However, it will require lots of time and expertise.
Professional Guidance
As a new investor, you need professional guidance and support, and regular mutual funds might be an appropriate option. The financial advisor will create a well-balanced, goal-oriented portfolio that meets your needs.
Returns
As the direct mutual fund has a lower expense ratio, the difference in returns depends on various factors, including your investment size and investment horizon, as well as the fund’s performance.
Risk Tolerance and Investment Horizon
Direct mutual funds are an excellent way to optimize returns if you know you can make the right decisions. Otherwise, from Regular vs Direct Mutual Funds, regular mutual funds are the best-suited option if you want expert guidance to handle market volatility or match your investments with your financial objectives.
Tax Implications: Are They Different?
Taxation of Regular vs Direct Mutual Funds is identical. Long-term capital gains tax does not apply to dividends; only short-term gains on equity mutual funds, in the case of investors holding less than a year, are taxed at 20%. The long-term capital gains tax (LTCG) began on the funds held for over a year, with ₹1.25 lakh of gains remaining exempt and being taxed at 12% if it exceeds that amount.
For debt mutual funds, STCG applies for a holding period of less than three years and is charged at the individual’s income tax slab. LTCG is available on funds held for over three years, indexed at 20%.
Choosing between Regular vs Direct Mutual Funds
Who Should Choose Regular Mutual Funds?
- Investors tend to be hands-off and appreciate the direction that a financial advisor provides.
- This is for newbies who do not know mutual fund schemes and need guidance to choose the best funds.
- Professionals who do not have the time to manage their investments
Who Should Choose Direct Mutual Funds?
- For experienced investors who can pick their mutual funds and do so effectively
- Investors who are cost-conscious and want to maximize their return by decreasing the overall expense ratio.
- People who can look after a portfolio are interested in watching what happens to it.
Final Thoughts!
At last, the performance of mutual funds, investment strategy, and experience of fund managers or investors determine what will work best for them. Regular vs Direct Mutual Funds: the regular fund is an excellent choice for new investors who believe in a handoff approach and need professional support and guidance. On the other hand, experienced investors who are confident in handling their portfolios think that using direct mutual funds will save money.
You can choose funds best suited for you and make smart investment choices. As per your expertise, financial objectives, and the risk tolerance of investors, they can choose regular vs direct in a mutual fund.
Further, investors can get in touch with us at 7838077767 to learn more about investing and create a future with financial freedom.
FAQ
Buying regular mutual funds through middlemen like brokers or financial advisors drives up expenses. Direct mutual fund purchases are made directly from the fund house, cutting out any middlemen and yielding larger returns at reduced costs.
Since direct mutual funds do not use intermediary, their expense ratio is lower. The expense ratio of regular mutual funds is higher because distributors and advisors receive commission fees.
Yes, direct mutual funds have fewer expenses; they typically yield higher returns. The compounding effect of lower fees can cause the difference in returns between direct and regular funds to grow significantly over time.
Regular mutual funds are a better option for novices or those who would rather work with a professional advisor. Financial advisors can assist in choosing appropriate funds and offer continuous assistance, simplifying the process for newcomers.
No, there are no differences in taxes between regular and direct mutual funds. The government taxes debt funds based on holding periods, and it applies short-term (15%) and long-term capital gains taxes (10% for gains exceeding ₹1 lakh) to capital gains from equity funds.
You can make direct mutual fund investments via websites run by fund houses or services such as RKFS.