Direct vs Regular Investment in Mutual Funds & Role of Mutual Fund Distributor

'Direct' Investment in Mutual Funds

Mutual Fund expense ratio is lower in direct plans compared to regular plans. In due course, the lower expense ratio of the Direct Plan translates to higher returns on the investments which keep compounding over the years. Thus, the investment in Direct Plan would be worth more over a period, in comparison to investment in the Regular Plan of the same scheme. It should be however borne in mind that the difference between NAV of Direct Plan and Regular Plan tends to be marginal. Thus, although there may be additional gain in Direct Plan, it may not be significant to make a big difference.

Generally, experienced investors can manage their investments better and meet their financial goals, whereas less engaged investors can fall behind. However, a financial advisor/distributor can help less experienced set their goals, be aware of their risk profile, and support achieving their financial goals. 

One should be able to do the below things to invest directly , 

• To set SMART financial goals for themselves.
• To know their Risk profile.
• To know the amount required for their goals in current and future times.
• To align their investment with their financial goals.
• To calculate the amount to be saved and invested monthly (systematically) to achieve those financial goals.
• To have good knowledge about mutual funds & to know which mutual funds are right for them.
• To choose & diversify their investment into different percentages in different mutual funds.
• Aware of market situations.
• To Review and monitor the performance of their investments periodically and make appropriate changes when required.
• To spare time to learn and do all these things by themselves.

While the Direct Plan makes sense for knowledgeable experienced investors, it may not be suited for all investors, especially new and inexperienced investors. So, if you are a new and inexperienced investor, unsure in which scheme to invest, unsure of if able to spare time for all the activities, and need guidance/assistance in investing, you may be better off seeking the help of a mutual fund distributor and invest in Regular Plan.

'Regular' Investment in Mutual Funds

The investment in mutual funds through a mutual fund distributor (MFD) is called Regular investment. The fund house pays a small commission to the agent/middleman for introducing a new investor to their mutual fund.  The amount of commission is on an average of 1% which varies for different types of funds. The AMC (Asset Management Company/ Fund house) will add this commission to the expense ratio, and hence, regular funds are slightly more expensive than direct funds. 

Benefits through Mutual Fund Distributor over Direct Investment

A professional mutual fund distributor (MFD) provides a list of services to the& benefits to their clients. 

Risk Profiling

MFD can help understand the Risk Profile of investors so he can invest as per his risk appetite.

Help in goal setting

MFD helps an investor to set smart goals. The initial goal-setting helps the investor understand goals and how much he needs to invest per month to achieve those goals.

Convenience

MFD does many things for an investor such as initial risk profiling, support in goal setting, selection of funds as per need, documentation, reporting of performance, help in review and monitoring of fund performance periodically (5-6 funds) and execution of any buy, redemption orders.

Less or No paperwork

Nowadays MFD can work with different online portals or their own portals which help investor complete their documentation with less or no paperwork such as MF application, KYC, etc. Everything is done online in lesser time.

Guidance on Mutual Funds

Comparing and analyzing mutual fund performance and matching it with an investor’s risk profile & financial goals requires in-depth knowledge. A Registered qualified professional can guide you in picking the right investment portfolio. Also, they can suggest funds that offer excellent returns with their expertise.

Periodic Review of portfolio

The distributor helps you review your portfolio returns and re-balance the asset allocation if needed. This reduces risk and increases the chances of good returns.

Mutual Fund Portfolio Reports

MFD provided you a consolidated report periodically. Your Mutual Fund Agent should be able to give you different types of reports like transactions detailed reports, individual portfolio reports, family portfolio reports, etc.

Online Portal access

MFD provides online access to the investor for an online portal where he can check his investment.

Mutual Fund portfolio management

MFD supports investors to maintain & monitor a portfolio of mutual funds. Managing many funds for own and for his family is a difficult task for an investor having less time or knowledge. MFD also supports investors manage the whole family portfolio.

Transfer to nominee

MFD supports in transfer investment to the mentioned nominee, in case of the death of the investor. This is a very complex procedure that may eat a lot of your productive time.

Conclusion

We don't have to mention it separately that Low cost alone will never be the only factor to influence investor to start with Direct MF investment. 

If we have some medical condition, we go to a doctor for medicines. We visit lawyers if we have law-related issues, court matters. We visit an authorized servicing center or mechanic to fix our car/bike-related issues. 

Our hard-earned money deserves some qualified person if we have to invest it.

Hope now you have understood about Direct & Regular plans in mutual funds & the role of Mutual Fund Distributor.