Anyone who has tried to look up options for suitable investments knows there are many options to consider. You must be getting varied opinions from people around you. While the prospect of investing might be daunting, confusing, or anxiety-inducing, mutual funds provide a haven because of a lower risk and higher stability. What are direct and regular mutual funds, and which is better?
What are Mutual Funds?
Mutual funds are a collective investment run by an asset management company. The money of various investors is pooled to invest in a combination of securities. Mutual funds are operated by professional money managers, who do all the research and choose investment options and aim to provide investors with a stable income for their investment.
How are Regular and Direct Funds Different?
A regular mutual fund is when you go through a mutual fund distributor, acting as an intermediary for the investment. Naturally, this means that the asset management company will charge you distributor charges. A direct fund is a mutual fund scheme offered by the fund house or asset management company wherein you can invest directly in the fund, decreasing your overall cost.
Advantages Direct Funds Have Over Regular Mutual Funds
Less Expensive:
Since you save up on the commission you’d otherwise pay an agent, the expense involved at the time of setting things up is low.
Higher Net Asset Value (NAV) and Returns:
NAV is calculated by dividing the value of the assets in the fund’s portfolio by the number of outstanding units. Since no brokerage fees are charged, the NAV and returns from these funds would be higher than regular funds.
No Manipulation by Agents or Brokers:
Sometimes, the agents or brokers might persuade you to invest in a fund based on their interests. Direct funds allow you to circumvent that situation and make a decision based on your interests.
Conclusion
Regular vs direct mutual fund, which is better, isn’t the question here. Does it suit you or not? For an investment savvy investor who has the market knowledge, expertise, and time to arrive at the best mutual fund to invest, a direct mutual fund best suits him/her. Paying an advisor, the additional fee is not worth it as it doesn’t add any extra value.
While regular mutual funds aren’t too insufficient themselves, there are distinct advantages to going down the direct funds’ route. However, investors may benefit from going through a distributor’s advice if they are not experienced enough to manage their investment. One should always seek the advice of a financial advisor before proceeding further.
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