Direct funds and regular mutual funds are common among investors. But choosing one can be a difficult task, especially when you don’t understand the distinction between them. Investing is a subjective matter, and hence the choices vary with personal factors like age, tenure of investment, capital invested, experience or knowledge of the investor, and many more. After analysing all these factors, an investor should choose between the funds. But what exactly are these funds?
This article will help you know about direct and regular mutual funds and draw a comparison for your understanding.
What is a Direct Mutual Fund?
A direct mutual fund is a plan in which investors make direct investments through platforms or the Asset Management Company (AMC) without the use of middlemen like brokers or agents. Compared to Regular Plans, the returns are marginally higher, and the cost of investing is lower because there are no commission fees.
Key features:
- No distributor fee or commission is charged
- The expense ratio is reduced
- Increased long-term profits as a result of lower expenses
- Needs self-analysis and observation
- Accessible through direct platforms like Coin by Zerodha, Kuvera, and Paytm Money, or through AMC websites.
For instance, assume that Mr. A invests ₹1,00,000 in a Direct Mutual Fund plan with a 0.75% expense ratio and an average yearly return of 11%.
A = P × (1 + r) n
Where,
- P = Rs. 1,00,000
- r = 10.25% or 0.1025 (11% return – 0.75% expense ratio)
- n = 7 years
- A = 1,97,993.16
Mr. A will earn Rs. 97,993.16 (Rs. 1,97,993.16 – Rs. 1,00,000) on an investment of Rs. 1,00,000 at 10.25% in 7 years.
What is a Regular Mutual Fund?
Investors in a regular mutual fund plan make their investments through middlemen such as advisors, brokers, or relationship managers. These intermediaries receive a commission from the fund house, which is deducted from the fund’s expense ratio.
Key Features:
- Investments handled by an agent or advisor
- Contains commission and distribution fees
- Compared to direct plans, the expense ratio is a little higher.
- Provides fund recommendations and individual advice
- Perfect for new or less experienced investors
For instance, assume Mr. A invests ₹1,00,000 in a Regular Equity Mutual Fund in 2025. The annual return of 10% is generated, but includes a commission-based expense ratio of 1.5%.
Future Value (FV) = P × (1 + r) ⁿ
Where,
- P = Rs. 1,00,000
- r = 8.5% or 0.085 (10% – 1.5%)
- n = 7 years
- A = Rs. 1,77,014.22
Mr. A earns Rs. 77,014.22 (Rs. 1,77,014.22 – Rs. 1,00,000) at 8.5% at 7 years.
Direct vs Regular Mutual Funds: Comparison
- Mode of Investment: With Direct Plans, there are no middlemen involved; instead, you invest directly through the website of the AMC or a direct mutual fund platform. On the other hand, in regular plans, distributors, banks, or financial advisors help with fund selection.
- Expense Ratio: The expense ratio of direct funds is comparatively lower as they are more direct in nature, and no distributors are involved. However, regular plans have involvement of brokers that lead to advisory fees, resulting in a higher expense ratio.
- Returns Over Time: Direct Plans usually provide 0.5% to 1.5% higher annual returns than Regular Plans because of lower expenses. This compounding difference can result in a substantial gap in the final corpus over a period of 10 to 15 years.
- Investor Involvement: Investors using Direct Plans must be proactive, informed, and self-assured when choosing and monitoring mutual funds. For people who prefer supervised help and don’t want to handle investments alone, regular plans are perfect.
- Advisability: For experienced, independent investors seeking to cut expenses, Direct Plans are ideal. First-time investors or those who value convenience and expert advice, even at a slightly higher cost, are better suited for regular plans.
The table below gives a detailed comparison between direct funds and regular funds:
| Feature | Direct Mutual Fund | Regular Mutual Fund |
| Purchase Method | Directly via AMC or online platforms | Through agents, banks, or distributors |
| Expense Ratio | Lower (No distributor commission) | Higher (Includes commission) |
| Returns | Higher by 0.5%–1.5% annually (approx) | Slightly lower due to intermediary fees |
| Investor Involvement | High | Low |
| Best Suited For | Experienced investors | First-time or time-strapped investors |
| Transparency | High with no hidden commissions | Medium, includes commissions |
| Platform Examples | Coin by Zerodha, Kuvera, Paytm Money | ICICI Direct, HDFC Securities, or a personal advisor |
| Support & Guidance | Limited to platform tools | Human advisory available |
Bottomline
The conclusion can be drawn that both direct and regular mutual funds cater to the needs of different individuals. Choosing one should be based on personal need and experience in investing. Beginners may opt for regular funds as they can get brokers’ and advisors’ support. However, the net returns are negatively impacted as commissions and fees are also deducted.
For experienced investors, direct funds are a good choice as they are capable of making their own decisions. The net returns are comparatively higher in this case, as no fees are charged by brokers. So, measure your capabilities and choose accordingly.
