An overview about regular and direct mutual fund
Mutual funds are available in a couple of categories. This would be the direct along with regular selling of funds. In case of the former you can purchase from a website whereas in case of the other you would need a middle man. On opting for a direct mutual fund investment you exercise the option of direct.
Purchase of direct mutual funds
With direct mutual funds you can purchase from an asset management company. There are various types of such funds
- The first is open ended funds except for the ones that are closed or even ETFs
- Any new fund offers that could be open or close ended but they need to be of fixed term
- Any capital orientation protection schemes
- Interval funds which start from the first day of your last transaction period
In these types of funds, the brokers or middle men do not have any role. As an investor you are free from brokerage or commission charges. This is going to cut down the expense ratio. You can make a lump sum investment or you can opt for SIP as they are not going to charge you any transaction fees. The fact is you are paying to the mutual fund company directly as a different NAV value exists and the prospectus is going to specify direct that helps the investors to outline their plans clearly.
Regular mutual fund schemes
The moment you involve the services of a broker it is referred to as direct mutual fund appschemes. For this type of fund the company is bound to pay commission to the agent who brought in the customers. Here the AMC would go on to add this commission on to the expense ratio. For this reason the regular funds are a lot expensive than the direct funds. At an initial glance they can prove to be a better deal as it is cheaper. In case of regular funds, this extra money would be for the services you would pay to the broker or middle men. But the choice of a mutual fund low in price would not always seem to be a benefit. Till the point you are well informed you need to conduct a proper research so that a prudent choice is made. In such situations regular funds would be a proper choice.
As far as a regular mutual fund scheme evolves commission is paid to the middle men who bring in the client. Though the amount of commission would vary between 1 to 1.25 on a yearly basis. The monthly statement would not reflect this amount, but this is adjusted in the NAV value of mutual fund. In a direct plan the AMC is not entitled to pay any commission and the returns are 1 to 1.25 higher when you compare it to a direct plan. Though on the other hand a broker understands your investment portfolio and risk taking ability and then you can adjust accordingly. Here the certified financial expert can help you.