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Direct vs. Regular Mutual Funds: Uncover the Hidden Cost Differences!
- •The cost difference between direct and regular mutual funds can be substantial, especially in debt and index funds.
- •Moneyfront CEO Mohit Gang details distributor commissions, advisory fees, and tax implications.
- •Switching from regular to direct plans can have significant financial impacts.
- •This article provides informational purposes only and is not investment advice; consult certified experts before making investment decisions.
Key Questions Answered
In direct mutual funds, investors deal directly with the asset management company without intermediaries, avoiding distributor commissions. Regular funds involve third-party agents, brokers, or banks, where the mutual fund company pays them an annual commission that is included in the expense ratio.
Direct funds feature a lower expense ratio because they lack commission costs, whereas regular funds have a higher ratio due to agent commissions. Although a 0.5% to 1% difference may seem small initially, compounding can create a major difference in total returns over 15 to 20 years.
Retail investor interest in direct plans has grown significantly, with their share in retail mutual fund assets rising from 21.4% in March 2021 to 36.7% by March 2026, meaning about one in every three investments is now made through direct plans.
