Difference between Regular vs. Direct Mutual Funds

Vinod Choudhary
Jan 13
3 min read

When it comes to investing in mutual funds, you might have heard the terms "regular" and "direct." Understanding the difference between these two types of mutual funds can help you make more informed investment decisions. In this blog, we'll break down the key differences between regular and direct mutual funds in a simple, straightforward way. Let's dive in!

What Are Regular and Direct Mutual Funds?

Regular Mutual Funds:
- Definition: Regular mutual funds are sold through intermediaries like mutual fund distributors (Miles Wealth), or financial advisors.
- Fees: These funds come with additional fees, known as commissions or distribution fees, which are paid to the intermediaries for their services.
Direct Mutual Funds:
- Definition: Direct mutual funds are bought directly from the mutual fund company or through their official website.
- Fees: These funds do not have the additional commissions or distribution fees, making them generally cheaper than regular funds.

Key Differences

Cost:
- Regular Mutual Funds: Come with higher costs due to the additional commissions paid to intermediaries.
- Direct Mutual Funds: Have lower costs because there are no intermediary commissions.
Expense Ratio:
- Regular Mutual Funds: The expense ratio is higher because it includes the commission fees.
- Direct Mutual Funds: The expense ratio is lower, as it does not include commission fees.
Purchase Process:
- Regular Mutual Funds: Purchased through intermediaries like mutual fund distributor or financial advisors.
- Direct Mutual Funds: Purchased directly from the mutual fund company or their official website.
Advisory Services:
- Regular Mutual Funds: Often come with advisory services provided by the intermediaries.
- Direct Mutual Funds: Do not include advisory services, so you need to do your own research or seek advice elsewhere.

Example:

Imagine you want to invest ₹1,000 per month in a mutual fund. You have two options:

Regular Mutual Fund:
- You buy the fund through a distributor/financial advisor.
- The expense ratio is 1.2% (including 0.2% commission).
- Over 10 years, with an assumed return of 12%, your investment could grow to approximately ₹216,000.
Direct Mutual Fund:
- You buy the fund directly from the mutual fund company.
- The expense ratio is 1.0% (no commission).
- Over 10 years, with the same assumed return of 12%, your investment could grow to approximately ₹220,000 (Given that you buy the same fund at the exact same time).

Why Choose Regular Mutual Funds?

Expert Guidance:
- Just like you consult a doctor for medical advice, mutual fund distributors (Miles Wealth) / financial advisors assess your unique financial situation and recommend the best investment options for you.
- They provide personalized advice based on your financial goals, risk tolerance, and investment horizon.
Avoiding Common Pitfalls:
- When you choose direct mutual funds, you do your own research, which can be challenging. You might end up buying the wrong fund or one that is heavily marketed but not suitable for your needs.
- Miles Wealth / Financial advisors help you avoid these pitfalls by providing expert insights and recommendations.
Affordability:
- Mutual fund distributors are often very affordable, and you don't have to pay any extra fees.
- Financial advisors might be more expensive, but they offer comprehensive financial planning services.
Peace of Mind:
- Knowing that your investments are being managed by professionals can give you peace of mind.
- You can focus on other aspects of your life while your financial advisor takes care of your investment portfolio.

A Thought to Ponder

Choosing between regular and direct mutual funds depends on your investment goals, preferences, and comfort level.

Conclusion

Regular mutual funds offer advisory services and expert guidance, making them a great choice for those who prefer professional advice. Direct mutual funds provide cost savings but require more self-reliance. By understanding the key differences and considering your investment goals and preferences, you can choose the option that best suits your needs. Start exploring your investment options today and take the first step towards building a secure financial future.

Disclaimer: This blog is for educational purposes only. The securities/investments mentioned here are not recommendations.

P.S. If mutual funds are on your mind, check out Miles Wealth! We make investing easy with personalised mutual funds tailored to your risk tolerance and financial goals. No need to be a finance expert or spend hours researching—just invest in funds that truly fit you. Download Miles Wealth today!