Direct vs regular mutual funds: Which is better for you?

To shed light on this topic, CNBC-TV18 interviewed Amit Bivalkar, Founder & Director of Sapient Finserv, who highlighted the longstanding presence of direct plans, offering investors the opportunity to engage directly with mutual fund teams, thus bypassing distributors.

He mentioned that direct plans can also be accessed through registered investment advisors, albeit with a fee, or via execution-only platforms.

In contrast, regular plans entail investing through intermediaries such as mutual fund distributors.

Bivalkar suggested that direct plans are more suitable for experienced investors capable of understanding market fluctuations and making informed decisions regarding asset allocation and timing.

He pointed out that while the underlying portfolio in both direct and regular plans may be identical, the disparity lies in the distribution costs. Bivalkar explained, “The underlying portfolio in a regular plan or a direct plan is the same; therefore, the raw gross returns, if you try to look at them, are absolutely similar. But the difference in return will arise due to the distribution cost of a regular plan. So typically, the total expense ratio (TER) of a direct plan is the overall TER of a mutual fund scheme minus the distributor commission.”

However, Bivalkar cautioned against solely pursuing higher returns, emphasising the significance of understanding one's risk profile and selecting investments accordingly.

He suggested that investors confident in their abilities may opt for direct plans, while those preferring guidance should seek the assistance of a distributor or advisor.