Before investing in mutual funds, know the real game of ‘Direct’ and ‘Regular’, one small mistake and profits worth lakhs can be lost.

Investing in mutual funds has become the most popular way to increase your wealth today. But as soon as you choose a fund to invest, you come across two schemes that look similar. ‘Direct’ is written in front of one and ‘Regular’ is written in front of the other. At first glance, these two look like twin brothers – they have the same portfolio, the same fund manager running them and the investment strategy is exactly the same. But wait, there is a subtle difference hidden between these two, which can increase or decrease your profits by lakhs of rupees in the long run. If you are also confused about where to invest your money, then this news is for you only.

The method of investment decides the burden on your pocket.

The biggest difference between these two options is through whom you are investing. ‘Direct Fund’ simply means that you are directly joining hands with the Asset Management Company (AMC) i.e. the Mutual Fund House. In this there is no third person or middleman between you and the company. Whereas, in ‘Regular Fund’ you invest through an agent, distributor or financial advisor. Now it is obvious that if someone is helping you, he will also take his fee, and this fee changes the mathematics of your investment.

Why do you get higher returns in direct funds?

If you look at the past data of direct and regular funds, you will find that the returns of direct funds are always slightly higher. The main reason behind this is the ‘expense ratio’ i.e. the cost of managing the fund. Since in direct plan the company does not have to pay commission to any agent, hence its cost is less. Initially this difference may seem trivial to you like 0.5% or 1%, but when it comes to investment of 15-20 years, this magic of ‘compounding’ turns your savings into extra profits worth lakhs.

Why do people choose regular funds?

Now the question comes that if there is more benefit in direct, then why do people fall into the trap of regular funds? Actually, with regular funds you get a ‘support system’. The stock market never moves in a straight line, there are ups and downs. When the market falls badly, the common investor gets nervous and starts thinking of withdrawing his money. At such times, an experienced advisor prevents you from taking wrong decisions and gives you the right advice as per your goals. For those who do not have a deep understanding of the market, regular fund fees essentially act as ‘protection fees’ for their investments.

Make the right choice as per your need

The decision depends on which category of investor you are. If you can do market research yourself, have time and are not distracted by ups and downs, then direct funds are best for you. This will reduce your costs and the profits will go directly into your pocket. But if you want a professional to take charge of your investment and show the right direction, then regular funds are a better way. Remember, switching funds frequently or withdrawing money out of fear is the biggest mistake that can cost you more than any fees. Choose the right option based on your understanding and risk taking ability.