Hello Readers!
Mutual Fund Investment is a simple way of investing in financial Securities, managed by experts. Investors who don’t have much time to analyze the market and then trade in the stock market, mutual fund investment is an opportunity for them, to participate in the market growth.
Management of mutual fund investment comes with a small cost that is charged to investors on their investment. These costs typically include management fees and operating expenses like registrar and transfer agent fees and in case of regular funds distributor fees.
DIRECT vs REGULAR FUNDS
A mutual fund offers two types of investment plans, that include a Direct plan and Regular plan. As a Direct plan in the mutual fund does not have any involvement of middleman (mutual fund distributors, broker, or agents), they have lesser expense ratios. The direct plan in mutual funds is purchased by investors directly from the Asset Management Company (AMC).
On the other hand, Regular Plan in mutual funds, have distributor commission included in their expense ratio as they are sold by distributors for wider reach.
Direct and regular funds are two separate funds, but the money is managed in an identical manner. It’s like buying a shirt in a store vs the factory outlet. The only difference between these two is the cost. Technically the shirt whether bought from a factory outlet or from a store serves the same purpose, but it can be said similar in case of mutual funds.
Although direct mutual funds charge low expense ratio than regular mutual funds. But they come with their own set of advantages and disadvantages.
Investors might think, that they can earn higher returns with lower expense ratios if they pick up direct funds. But as per the financial experts, Direct Mutual Funds are not suitable for all kinds of investors.
Direct Mutual funds lack continuous monitoring and automatic review and rebalancing of the portfolio as per the investment goals, while Regular funds are continuously monitored by the advisor. They rebalance the portfolio when needed to meet client goals.
In direct mutual funds, the investor has to carry out everything, right from analysis of different funds, pick out a fund to invest, reviewing the portfolio, to rebalancing their portfolio, on their own. It is not easy for investors who have a busy schedule, or a novice investor to analyze the market trend on a regular basis, and then plan their investment.
Let us look at the advantages of regular funds over direct funds.
ADVANTAGES OF REGULAR FUNDS
Ease and convenience
In regular funds, the advisor after analyzing the investor requirement and his risk capacity, shortlist the funds that best suit investors' risk appetite and goals. All the investor has to do is invest in the funds.
Expert Advice
The advisor has in-depth knowledge of the market and its trends. The advisor can guide the investor towards a portfolio that best suits him. Under their market expertise, the investor can invest in funds that give good returns.
Continuous monitoring and reviewing
The advisor work doesn’t end at only advising good funds and constructing a good portfolio. He is also responsible for continuous monitoring of the portfolio in favor of the client’s goals and rebalances it if required. This will lead to higher returns than investing just in Direct funds.
Additional services
The advisor also provides value-added services like keeping a track of the client’s investments and facilitate the client to keep track of his/her portfolio.
Although regular fund charges a bit more expense ratio than direct mutual funds, these advantages justify the additional expense?
Well, Direct mutual funds are suitable for those investors, who have enough knowledge about the market. For those who have the time to review all the mutual funds (around 12,000+ funds) and shortlist the best ones that suit their risk appetite, investment horizon, and goals.
For the rest investors, Regular funds are more suitable, which provides them with all operational and management services at a minimal cost.
The only difference between a direct fund and a regular fund is the expense ratio. Their portfolio and investment strategy have no difference. However, regular funds have many advantages that out weights the direct ones.
It is completely on an investor which plan does he choose, that suits him best, so only advice to investors choose wisely.
For any kind of investment query, you can contact us at Shri Ashutosh Securities Pvt Ltd., we are here to help you in any way possible.
Happy Investing!
(Mutual Fund investments are subject to market risk Illustrations are for example only, there is no guarantee of returns. Past performance is not an indicator/guarantee to future returns).