Business Finance

Why are Direct Mutual Funds Better than Regular Plans?

India is a richly populated country, and its economic structure is quite vast and complicated. The market of investment in India is also huge as numerous investors opt for different ways of investment. The primary aim of all investors is to get a decent return from the investments. Mutual fund investments were looked down upon by a huge mass of investors a few years back, but it is rapidly gaining its credibility as the investors are developing the needful skills to manage a mutual fund in the right manner. Right strategies taken at a convenient time ensures that an investor can avoid huge depreciation on returns while investing in the mutual funds. Investments in mutual funds allow an investor to diversify his portfolio by investing in different types of funds.

There are mainly two variants of mutual funds. They are direct mutual fund investment and Regular mutual fund investment. The details of the variants are mentioned below in details:

Variants of mutual funds

Regular mutual funds:

Regular mutual funds are managed by an intermediary. The intermediary can be a mutual fund broker, distributor, or a financial advisor. The intermediary basically works as a middleman between an investor and the Asset Management Company. The primary responsibility of the intermediary is to ensure that the investor gets good returns on the investment. In turn, the intermediary has a percentage of commission that is given from the profit that each investor gets as investment returns. Hence, the price of regular mutual funds is slightly higher than direct mutual funds.

Direct mutual funds:

Direct mutual funds are handled by the investor himself. The best part of a direct mutual fund is that you can invest directly from the asset management company without any middleman. Purchasing the direct mutual funds does not involve any commission and, thus, the investor has to pay a lower price. Moreover, the transaction charges are not levied as the investor purchases these funds directly from the AMC. It is due to the absence of a third party involvement, an investor needs to make the investment decisions of purchasing and selling the mutual funds himself. Here, a comparative study is given in details that will help you to understand why direct mutual funds are better than regular mutual funds.

Reasons Why Direct Mutual Funds are Better than Regular plan

Here’s a quick comparison of direct vs regular mutual fund investment which tells you why you should invest in the direct mutual funds.

Less Expense Ratio

Every mutual fund company charges some fees as the investor looks for guidance from the advisor and purchases regular mutual funds. The commission paid to the intermediary for the purchase of regular mutual funds increases its expense ratio. As a result, an investor can get lesser returns in case of regular mutual fund investment. On the other hand, the total amount of return can be availed by the investor when investing in direct mutual funds. The Asset Management Company cannot deduct any amount as a commission fee as the whole setup of intermediation is absent. An investor can save 0.5 to 1% of the total return amount in direct funds, which would otherwise be levied as the commission for regular funds.

Higher amount of returns

As there are no hidden charges present in the case of direct mutual funds, it gets translated into high return amounts. As an investor, you can clearly observe that the percentage of return from a mutual fund is higher for the direct variant compared to its regular counterpart. The difference of return can vary from 2% to 3% in most of the cases. So, you can expect that the returns actually have a significant difference. The principal emerging bluechip fund can give you higher returns if you take it as a direct mutual fund rather than opting for it to purchase through a fund broker as a regular mutual fund.

High Net Asset Value

The Net Asset Value (NAV) is one of the vital aspects of any mutual fund investment. It is the worth of the mutual fund units and is determined by dividing the total number of assets between the fund and the number of outstanding units. As a result, the investor can expect higher returns. Quite similar to the returns, the net asset value in the case of a direct mutual fund is higher than the regular counterpart. One of the most convenient options you can opt for when investing is the Mirae asset tax saver fund as the NAV is quite high when taken as a direct plan.

One can rarely face misleading situations

When an investor opts for investing in a regular mutual fund, he is more vulnerable to fraudulent activities. The asset management company might mislead an investor prominently and charge a lot of money. However, not all agents and companies present in the market are a fraud; an investor might not be able to detect it when making the initial deal.

It can be risky managing a regular mutual fund with a fraud agent as he can dupe thousands of rupees at a time leaving the investor bankrupt. The picture is completely different in case of direct mutual funds. An investor can directly invest in the fund and clearly check all the charges that are present in it. This actually helps him to avoid the situation of facing any fraud situations when investing and getting the returns.

Total control of mutual fund investment

In the case of direct mutual funds, an investor has total control over the mutual fund investment. You will not face any problem if a broker changes the city or agency. When investing in a direct mutual fund, you can update the KYC documents. Another good factor about the direct mutual fund is that the investor can directly consult with the asset management company. As a result, investments in a direct mutual fund turns an investor disciplined. One can develop the skills of successful investment when managing a direct mutual investment. They can come to know about the negatives of mutual fund investments and avoid them.

An investor can switch to a direct mutual fund from a standard mutual fund. All he has to do is to follow the guidelines provided by the company. One can opt for both online and offline procedures. However, in the case of switching to the new scheme, you have to sell all the existing units. You must always consider checking the history of the direct mutual fund at the time of investing. As the financial goal is the basic thing that you need to consider when investing in a mutual fund, one needs to know the difference between direct and regular mutual funds. An investor can easily make the best of a mutual fund investment if he is aware of his own monetary necessities.