direct-mutual-funds-questions-sqrrl- direct mutual fund vs regular mutual fund

1. How do I know if I have a Direct Mutual Fund Plan or Regular Mutual Fund Plan?

Before I answer this question, I would recommend you to go through the complete guide on Direct mutual funds to understand the difference between direct and regular mutual funds in India. The easiest way to know this is to check the monthly statement that you receive from the mutual fund that you have invested it. The scheme name will either say ‘Regular’ or ‘Direct’, and that will help you figure out whether your investments are in a Regular Mutual Fund or a Direct Mutual Fund.

Alternatively, you can also think about how you invested in Mutual Funds.

If you invested in your bank, or through an agent that is not charging you anything or offering his advice for free, then you have bought a regular plan. 
Did your bank/broker/advisor/distributor explicitly tell you about which plan you are opting for? If the answer is no, then you have invested in a regular plan.

This means, that there is a commission that is being paid to your broker/distributor from your investment.

2. I was told in the long run commissions don’t matter and so there’s a nominal difference between regular and direct mutual funds, is it true?

This is a confusion that arises in the mind of every investor at a certain point once they become aware of the differences between a Regular Mutual Fund and a Direct Mutual Fund.

Your investment advisor or agent might tell you that it doesn’t really matter which plan you invest in since a 0.1-1% fee is nominal enough to not affect you in the long run. 

Consider this, if you are looking to invest for the next 30 years, putting in a total of Rs 10 lakhs in a Regular Mutual Fund, and expect a nominal return of 8%, your investment could be worth Rs 76 lakhs.

However, if you had invested in a Direct Mutual Fund, the same amount, plus the added 1% commission that you had paid in the Regular Mutual Fund, your investment could be worth Rs 1 crore in the same period. 

In simpler terms, while the nominal fee might not make much of a difference in the short run, this could definitely have a huge impact in the longer run, in this case about 1/4th of your final investment amount.

3. How do I buy direct mutual funds, or how do I switch my current investments into direct?

There are several ways which you can go about in order to buy a Direct Mutual Fund Plan. You can register manually at the AMC’s website, do your KYC for each AMC that you want to buy a Direct Mutual Fund from and then continue investing. 

However, there are several online investment advisors that offer the convenience of one-time registration & advice you on purchasing the best Direct Mutual Fund for yourself.

However, while some of these platforms are free to use, some have different types of subscription plans or one-time charges.


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