Are direct mutual funds better than regular mutual funds?

When it comes to mutual funds, there are two main types – direct and regular. Both have advantages and disadvantages, so it’s important to understand their differences before investing. Direct mutual funds are a type of investment fund offered directly to investors by the fund company rather than through a broker or financial advisor. This means that investors can buy shares of the fund directly from the fund company without having to pay any commissions or fees. There are several benefits of investing in direct mutual funds:

Direct mutual funds have a lower total expense ratio

The Total Expense Ratio (TER) is the total charge levied by an AMC for managing a scheme. It includes the fund’s recurring expenses like management fees, administrative costs, Operating expenses etc. and one-time expenses related to marketing and distribution of the fund (also known as loads or entry/exit load). For, e.g. If a mutual fund has a TER of 1.5%, the AMC will charge Rs 1.5 per Rs 100 of average net assets yearly towards managing the scheme. A lower TER indicates a better value for money, leading to higher returns for investors over the long term. For example: if two schemes both deliver a 10% return in a year and one has a TER of 1% while the other has a TER of 2%, then the scheme with a lower TER would have given higher returns to investors. ‘

Direct mutual funds typically have lower expense ratios than similar funds offered through brokers or financial advisors. This means you get to keep more investment returns with a direct plan.

Direct mutual funds have a higher NAV

When you invest in a mutual fund, you purchase a piece of the fund’s portfolio. The fund’s “net asset value,” or NAV, is the fund’s price per share and is calculated by dividing the total value of the fund’s assets by the number of shares outstanding. The NAV is calculated daily and can fluctuate based on changes in the market values of the underlying securities. For example, if a fund holds stocks that go up in value, the NAV will increase. Conversely, if the stocks decline in value, the NAV will go down. Direct plans typically have a higher NAV than regular plans. This means that you get more bang for your buck with a direct plan.

Direct plans generate better returns

When you invest in a mutual fund, you are pooling your money with other investors to buy a group of securities. The value of your investment will vary based on the performance of those securities. Returns are what you earn on your investment, and they can be positive (if the value of your investment goes up) or negative (if the value of your investment goes down). Over time, the goal is for the overall return on your investment to be positive. When it comes to returns, direct plans typically outperform regular plans. This is because the distributor commissions are absent in direct plans. Without these commissions eating into your investment returns, you are left with more money in your pocket at the end of the day. According to one report, direct plans of mutual funds can yield 13.6% more than regular plans.

Direct mutual funds’ disadvantages

So, what’s the downside to investing in a direct plan? Well, not all mutual funds offer the same level of returns. You need to research and select an investment yourself to be successful with this type of thing; it can also help if you’re comfortable understanding how volatile markets may affect things during tough times when other perspectives come into play! You will have to be careful about which direct mutual fund you invest in to get the best possible return on your investment.

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