Money tip! Direct Fund vs Regular Mutual Fund: Which one will give you more money? Know here

Direct Fund vs Regular Mutual Fund: Wondering what is the difference between a direct plan and a regular plan and how to invest in them? What are the technicalities involved in Direct and regular plans? Nirmal K. Rewaria, co-founder and Chief Executive Officer (CEO) at FinPeace has an answer. A Direct plan is what you buy directly from the mutual fund company whereas a Regular plan is what you buy through an advisor, broker or distributor. The mutual fund company pays a commission to the intermediary in the case of Regular plans - the money is deducted from your payment, of course.

So, which will give a higher return- Direct or Regular? How will the broker or intermediary help you? The new investors are always clueless about these things and many times go for wrong choices. Nirmal K. Rewaria says that there is not much difference between a Direct and a Regular mutual fund. The difference between Direct and Regular mutual funds is usually in terms of expense ratio. The expense ratio is lesser in case of Direct funds as you take it directly from the mutual fund company while a regular fund has the commission of the intermediary. The Securities and Exchange Board of India (SEBI) had started Direct funds seven years ago.

In Regular mutual funds, the mutual fund companies sell their products through intermediaries or distributors. For new investors, it is always advisable to opt for intermediaries, Rewaria says even though there is a commission factor involved with the fund.

Rewaria says that the funds have a liquidity risk and a new investor may not understand the finer points of how investments work. He also said that it is always good to set targets with your investments. Investments should not always be made primarily with expectations of very high returns.

In Regular funds, the returns are likely to be comparatively lower. There is also a danger of less transparency with Regular funds as the intermediary may sell a bad investment plan for the sake of his commission, the CEO warns.

There is also the role of advisor in Direct funds, Rewaria says and the investor can hire an advisor for Direct investments but the advisor has to be a Registered Investment Advisor (RIA). RIAs are registered with SEBI. The RIA is not attached to the mutual fund company so the advice from him is bound to be more useful, he further says.

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The difference in returns or the Net Asset Value (NAV) in Direct vs Regular is around 1.25%.