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Direct Mutual Funds Vs Regular Mutual Funds

In the realm of mutual funds, investors encounter two distinct options: direct mutual funds and regular mutual funds.

Direct Plan allows an individual to invest directly with the Mutual Fund Asset Management Company (AMC), bypassing any involvement of distributors or agents. Here, individual investors enjoy complete autonomy in choosing their mutual fund schemes.

Regular Plan involves the active participation of agents, brokers, distributors, bankers or advisors. In a regular plan, investors invest through these intermediaries, who are paid a fee by the AMC.

The pivotal divergence between these options is the inclusion of a distribution commission in regular mutual funds, an element that unavoidably inflates their expense ratio. The expense ratio, a fundamental metric, reflects the total costs borne by the fund relative to its assets under management (AUM).

The amplified expense ratio underscores because direct mutual funds outperform their regular counterparts. However, it is vital to acknowledge that several compelling reasons favour direct mutual funds over the traditional investment route.

Differentiating Features of Direct and Regular Mutual Funds:

  1. Cost-Efficiency: Direct mutual funds exhibit a significantly lower expense ratio, representing charges imposed by the fund management entity. For instance, if a fund discloses a 0.2% expense ratio, it signifies that 0.2% of the AUM is allocated to cover operational and administrative expenses. In contrast, investors opting for regular mutual funds often engage the services of a preferred mutual fund advisor or a local financial advisory provider, incurring supplementary fees. These advisor fees are directly deducted from the invested amount, contributing to the overall expense ratio of the fund. Consequently, higher commissions lead to a more burdensome expense ratio for regular mutual funds. In stark contrast, direct mutual funds are devoid of commission fees or distribution charges, making them a more cost-effective choice.
  2. Enhanced Returns: Direct mutual funds notably have a propensity for yielding superior returns compared to their regular counterparts. This performance differential primarily stems from the lower expense ratio associated with direct plans.
  3. Elevated Net Asset Value (NAV): The Net Asset Value, or NAV, of a direct mutual fund consistently surpasses that of its regular counterpart. NAV denotes the per-unit value of a mutual fund, computed by dividing the fund’s total assets by the number of outstanding units. The fund’s assets encompass a diverse array of financial instruments, spanning debt instruments like debentures and bonds, as well as equity instruments like corporate shares. In certain instances, cash reserves may also form part of the fund’s assets. By eliminating fees paid to intermediaries, direct mutual funds successfully bolster the NAV.
  4. Reduced Vulnerability to Misguidance: While retail investors may perceive engaging an advisor as a prudent decision, it is not without caveats. Scrutiny of consumer forums reveals numerous grievances against wealth advisory agents implicated in fraudulent activities that result in substantial financial losses for investors. While not all advisors are unscrupulous, the inherent conflict of interest, stemming from their commission-based compensation, fosters an environment conducive to impropriety. Direct mutual funds mitigate this risk, offering a more transparent and secure investment avenue.
  5. Empowerment and Autonomy: Opting for direct mutual funds empowers investors by placing them firmly in control of their mutual fund portfolios. This empowerment necessitates active engagement, involving due diligence on fund dynamics, understanding the intricacies of Asset Management Company (AMC) transaction procedures, maintaining updated Know Your Customer (KYC) information and other procedural tasks that equip investors with a comprehensive understanding of the investment landscape. While many individuals may derive comfort from commission-based agents facilitating their investments, adopting a more hands-on approach to long-term financial goals can be invaluable. Becoming familiar with the chosen AMC and conducting fund comparisons, or utilizing the services offered by wealth management platforms, can facilitate informed portfolio construction and tailored investments.
Scheme Name Plan Category Name Crisil Rank AUM (Rs. crore) 1Y Returns (%) 3Y Returns (%) 5Y Returns (%) 10Y Returns (%)
Nippon India Growth Large Cap Fund Direct Plan Large Cap Fund 5 16633.52 26.06% 123.63% 118.42% 423.75%
Canara Robeco Bluechip Equity Fund Direct Plan Large Cap Fund 3 10335.66 17.21% 72.74% 122.23% 328.99%


Scheme Name Plan Category Name Crisil Rank AUM (Rs. crore) 1Y Returns (%) 3Y Returns (%) 5Y Returns (%) 10Y Returns (%)
Nippon India Growth Large Cap Fund Regular Large Cap Fund 5 16633.52 25.02% 118.16% 109.34% 379.26%
Canara Robeco Bluechip Equity Fund Regular Large Cap Fund 3 10335.66 15.72% 65.44% 106.98% 280.34%

Analysing Long-Term Performance and Fee Variations in Direct vs. Regular Mutual Fund Plans:

The divergence between Direct and Regular Plans becomes apparent when examining their long-term performance in conjunction with fees.

For instance, in the Nippon India Growth Large Cap Fund, the Direct Plan showcased a noteworthy 10-year return of 423.75%, eclipsing the Regular Plan’s 379.26%. This trend of outperformance continues across various time horizons, with the Direct Plan yielding 123.63% over 3 years compared to the Regular Plan’s 118.16%, and 27.90% over 2 years, surpassing the Regular Plan’s 25.76%.

In the Canara Robeco Bluechip Equity Fund, a similar pattern emerges, with the Direct Plan boasting a substantial 10-year return of 328.99% compared to the Regular Plan’s 280.34%. Over 3 years, the Direct Plan showcases a 72.74% return, in contrast to the Regular Plan’s 65.44%, emphasizing its superior performance. These calculations underscore the cost-efficiency and profitability inherent in Direct Plans, substantiating their appeal for astute, long-term investors seeking optimal returns.

Following are the characteristics summarised for Direct and Regular Mutual Fund Plans:

Factor Regular Mutual Funds Direct Mutual Funds
Expense Ratio Higher, due to distribution commissions and advisor fees. Lower, as there are no commission fees or distribution charges.
Returns Tend to be lower, impacted by the higher expense ratio. Tend to be higher, benefitting from a lower expense ratio.
Net Asset Value (NAV) Lower, reflecting the impact of intermediary fees. Higher, as there are no fees deducted for intermediaries.
Vulnerability to Misguidance Higher, as advisors may have conflicts of interest. Lower, as direct funds offer transparency and security.
Empowerment and Autonomy Reduced, as investors may rely on advisors. Increased, requiring active engagement and understanding.


In conclusion, the choice between direct and regular mutual funds fundamentally hinges on the investor’s objectives, preferences, and inclination towards autonomy. Both plans offer unique features, emphasizing the importance of an informed decision in optimizing one’s financial portfolio.

Dedicating more time to scrutinizing the performance of your investments and undertaking timely corrective measures becomes imperative. For those seeking guidance in making sound investment decisions, including comprehending their risk tolerance, risk profile of the scheme, and asset allocation, as well as selecting the appropriate mutual fund scheme, seeking the counsel of a financial advisor is advisable.

It is important to recognize that investors possess varying levels of experience in the investment landscape. Therefore, it is prudent to appraise the advantages and drawbacks of opting for direct versus regular mutual fund plans and determine the approach that aligns most harmoniously with your unique financial objectives.

Disclaimer: This blog has been written exclusively for educational purposes. It is based on several secondary sources on the internet and is subject to changes. The mentioned names are not recommendations. Please consult an expert before making related decisions.
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