
Understanding Regular vs. Direct Mutual Funds | Image:
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A mutual fund is like a big money pot where many people put in their money. A professional fund manager then uses this money to buy a mix of stocks, bonds, and other investments.
By investing in a mutual fund, you get your money spread across many investments, which reduces risk, and experts manage it for you.
You also don’t need a large amount to start, unlike buying individual stocks.
Regular Mutual Funds
Regular mutual funds are bought through brokers, agents, or distributors who help you choose the right fund, handle paperwork, and guide you in your investment journey.
The main drawback is that the broker takes a commission, which makes the fund slightly more expensive and can reduce your long-term returns.
For example, if you invest Rs 10,000 in a regular fund, broker fees might take 1% of your fund’s value each year. Over 10 years, this could mean your investment grows to Rs 25,937 instead of Rs 27,000 without fees. Regular plans are helpful for beginners or those who prefer someone else to guide them.
Direct Mutual Funds
Direct mutual funds are bought directly from the fund company without any middlemen. This means there are no broker commissions, so your investment grows faster due to lower fees. Using the same example, if you invest Rs 10,000 in a direct plan, it could grow to Rs 27,000 in 10 years because all the money stays invested.
Direct plans are suitable for people who are confident in researching funds and managing their own investments.
Consider Ramesh and Sita. Ramesh is new to investing and wants guidance, so he chooses a regular plan. Sita knows how mutual funds work and wants to save on fees, so she chooses a direct plan.
Even if they invested the same amount, Sita’s investment grows more over time because she didn’t pay any broker fees.
Choosing the Right Option
The choice between regular and direct mutual funds depends on how much you know about investing, how much control you want over your money, and your long-term goals. Regular plans provide guidance but cost a little more, while direct plans cost less but require you to manage your investment.
The most important thing is to start investing, stay consistent, and keep learning about your choices to grow your wealth over time.