What are direct mutual funds? Here’s all you need to know
The time has come when every other person wants to invest his or her savings and enjoy the returns after some time. The mutual fund investments have become one of the most popular kinds of investments amongst the investors. The reason behind this is that the direct plan mutual fund investments are so easy going and have great results that no one can resist himself from investing in them. There are two types of mutual fund plans, the regular plan mutual funds, and the direct plan mutual funds. They both are very much similar but the fact that regular plan mutual investments are much costlier as compared to the direct plan mutual funds have led the nation to divert towards the direct plan. Although, before taking any decision about which plan will suits you the best it is very important to understand the difference between direct and regular mutual fund.
The direct mutual funds are regulated by the same management as the regular plan mutual fund, but the difference is that regular mutual fund plans can be purchased through many local distributors and intermediaries whereas the direct plan mutual funds can only be purchased through the Asset management companies (AMC) or through the mutual fund houses. This makes the direct plan mutual funds more secured as compared to the regular plan mutual funds. It is of no doubt that the direct plan mutual fund schemes are better than the regular plan ones but still, it is totally up to the choice of the investor that which plan he wants to buy.
The direct plan mutual funds are the kind of plan where you do not have to pay any kind of brokerage or commission to the distributor and all the return that your investment has gained will be yours only. There are many hidden charges that are deducted from the total rate of returns in case of regular plan mutual funds which does not happen in the case of the direct plan. This is the reason why the total expense ratio of the direct mutual funds is much lower than that of the regular plan mutual fund schemes. This way, the investor can enjoy every penny his investment worth without paying any commission to anyone. There are also no transaction charges made in the case of direct plans as the transactions are made directly by the AMC or the mutual fund houses and there is no agent or intermediary involved in the process.
There are many other things that you need to understand before buying a mutual fund plan and one of the most important factors is the NAV. The NAV is the Net Asset Value of the fund that you are investing, and it should be higher to get good returns. The NAV is higher in the case of direct plan mutual funds as compared to the regular plan mutual funds. This is one of the most effective factors which leads all the investors towards the direct mutual fund plan. The reason behind the higher NAV in direct plan mutual funds is the lower expense ratio as there is no amount deducted from the total returns and it leads to the higher NAV.
The direct plan mutual funds allow you to choose the portfolio manager for your mutual fund investment portfolio and this causes the most unbiased and zero conflict decision making while investing the funds in the market. It is a great thing to have an advisor who only thinks about your profit and does not make any biased decision to get more commission.