Direct vs regular mutual funds: Which one should you choose and why?

Mutual funds: Early investors often fiddle with different investment options. Some prefer to invest in stocks, whereas others opt for mutual funds. For the uninitiated, there are two broad categories of mutual funds based on the route of investing: regular mutual funds and direct mutual funds.

While regular mutual funds are typically the ones that you buy through a mutual fund distributor, direct mutual funds refer to those that can be bought directly through a digital platform such as Groww or Zerodha (Coin).

Direct vs regular mutual funds: Key differences

It is the same mutual fund scheme that you invest in, but the route you use to invest determines whether the fund is regular or direct.

It is advantageous to invest in a direct mutual fund because it carries a lower expense ratio, whereas regular mutual funds carry a higher expense ratio because distributors charge their commission for recommending the “right” fund to their clients, thus lowering the profit margin for investors.

On the other hand, it is recommended to invest in regular mutual funds if the investor is new and requires some hand-holding and suggestions to make informed decisions.

Which investors should opt for regular mutual funds?

1. Typically, those investors who are clueless about mutual funds and investing in general can decide to invest in regular funds.

2. Even those investors who have exposure to multiple asset classes and do not have the time to carry out their own research may also decide to go for regular mutual funds over direct ones.

3. Those investors who prefer to invest in mutual funds via an intermediary rather than taking a call on their own.

Who should opt for direct funds?

1. Those investors who want to save on commission to brokers prefer to go for direct mutual funds.
2. Those investors who at least know the fundamentals of investing and mutual funds tend to opt for direct mutual funds over regular funds.
3. Additionally, some investors who already have an account with online broking platforms such as Groww and Zerodha like to invest via them, wherein they can buy direct mutual funds without having to go to each asset management company's website separately.

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