Direct vs. Regular Mutual Funds: Which Route Is Right for You?

A regular plan is one where you invest through an intermediary such as a mutual fund distributor or broker. The intermediary helps you choose suitable schemes, complete the necessary documentation, and track your portfolio’s progress.

Since the fund house pays a small commission to the intermediary for these services, this cost is included in the plan’s expense ratio. The expense ratio in a regular plan is therefore slightly higher than in a direct plan.

Regular plans can be helpful if you prefer guidance and convenience. A qualified MFD (Mutual Fund Distributor) can help you identify your financial goals, choose funds that fit your needs, and provide ongoing support to keep your portfolio aligned with your objectives.

Expense Ratio: The expense ratio in direct plan is lower since there are no intermediary or distribution costs involved. The cost of managing the fund is deducted directly from the assets. In regular plan, a part of this cost goes toward paying distributor commissions and service charges, which makes the expense ratio slightly higher.

Intermediary: In direct plan, you invest with the Asset Management Company (AMC) without any intermediary. In a regular plan, mutual fund investments are made through a MFD , who receives a commission for their services.

Convenience: Direct plan can be purchased and managed through the AMC’s website or mobile app. You handle all your transactions and monitoring yourself. In regular plan , your MFD handles these details on your behalf, including paperwork, updates, and service requests.

Returns: Both direct and regular plans invest in the same underlying portfolio and are managed by the same fund manager. However, because of the lower expense ratio, the Net Asset Value (NAV) of direct plans is typically higher than that of regular plans. The difference reflects cost efficiency, not performance guarantees.

Net Asset Value (NAV): NAV represents the per-unit market value of a mutual fund scheme. Since regular plans have a higher expense ratio, their NAV tends to be slightly lower than that of direct plans of the same scheme. The difference arises from the cost of distribution and commissions, not from how the fund is managed.

Suitability: A direct plan suits investors who are confident in researching and managing investments independently. A regular plan is more suitable for those who prefer guidance, portfolio reviews, and professional advice throughout their investment journey.

The following table sums up the main difference between direct and regular plan options as a summary:

Both routes are valid. Your choice depends on how much time you have to manage your mutual fund investments and how comfortable you feel doing it on your own.

MFD play an important role in guiding investors through their mutual fund journey. They use their market understanding and experience to help investors make informed choices.

Here’s how they add value:

• Guidance and clarity: MFDs help you understand how different mutual funds work and which ones may suit your goals and risk profile.

• Research and comparison: They analyse various schemes, track fund performance, and shortlist suitable options on your behalf.

• Goal alignment: A MFD helps you link your investments to specific financial goals such as retirement, education, or buying a home.

• Regular reviews: They monitor your portfolio and suggest changes when your financial situation or market conditions evolve.

• Behavioural support: During volatile markets, a MFD can help you stay focused on long-term objectives and avoid emotional decisions.

• Administrative convenience: They assist with paperwork, KYC, and other investment formalities so you can invest with ease.

A MFD’s role is to provide informed guidance and structure, helping you make confident and consistent decisions as you work towards your financial goals.

1. When to Choose a Direct Plan

   A direct plan may be right for you if you:

   • Prefer making your own investment decisions.

   • Are confident about comparing fund performance and features.

   • Have the discipline to track your portfolio regularly.

   • Want to reduce costs and increase transparency.

   • Use digital tools to manage and monitor investments.

     Direct plans offer independence, but they require consistent effort and awareness. They work well when you have both knowledge and time on your side.
      

2. When to Choose a Regular Plan

   A regular plan may be suitable if you:

   • Are new to investing or unsure how to select mutual funds.

   • Prefer guidance from a professional advisor.

   • Value periodic reviews and updates on your portfolio.

   • Want help aligning your investments with your financial goals.

   • Prefer convenience in paperwork and record keeping.

     A regular plan can help you stay consistent even when markets fluctuate. The support of a trusted advisor can keep your investments on track and ensure you remain focused on long-term objectives.
      

3. Things to Consider Before Choosing

   Now that you know the difference between direct and regular plans, choosing between them should be relatively easy. Before deciding which route is right for you, keep the following in mind:

   • Your level of knowledge: Direct plans work well if you are confident about fund selection.

   • Your time commitment: Managing a direct plan requires regular reviews.

   • Your need for guidance: If you prefer advice and structured support, a regular plan can help.

   • The cost-benefit trade-off: Direct plans save on commission, while regular plans offer ongoing assistance.

   • Your financial goals: Choose the route that aligns with how you manage your overall financial planning.

     The decision is personal and should be based on your comfort, understanding, and time available to manage your investments.

Many investors wonder if they can switch from a regular plan to a direct mutual fund plan. The answer is yes. While you can switch from the regular plan to a direct one for the same fund, doing so is treated as a redemption and reinvestment. That’s why you should check for:

• Exit load: Some funds charge an exit fee if you redeem before a certain period.

• Tax implications: Switching may lead to capital gains tax.

• Process requirements: You may need to submit new forms or declarations.

Always review the costs and implications before switching. If you are unsure, consider seeking guidance from a financial advisor to make an informed choice.

Both direct and regular plans aim to help you achieve your financial goals. The difference lies in how you prefer to manage your investments — independently or with professional support.

If you enjoy researching funds and tracking performance, a direct plan gives you control and cost efficiency. If you value guidance, regular reviews, and convenience, a regular plan may serve you better.

There is no right or wrong choice. What matters most is choosing the route that fits your comfort level, financial understanding, and long-term investment discipline.

• An Investor Education and Awareness Initiative by Tata Mutual Fund. 

• To know more about KYC documentation requirements and procedure for change of address, phone number, bank details, etc., please visit: https://www.tatamutualfund.com/deshkarenivesh

• Please deal only with registered Mutual Funds, details of which can be verified on the SEBI website under ‘Intermediaries / Market infrastructure institutions.’

• All complaints regarding Tata Mutual Fund may be directed to service@tataamc.com and/or https://scores.sebi.gov.in/ (SEBI SCORES portal) and/or https://smartodr.in/login

• Nomination is advisable for all folios opened by an individual, especially with sole holding, as it facilitates an easy transmission process. 

• This communication is a part of the investor education and awareness initiative of Tata Mutual Fund.