What is the difference between direct and regular schemes in mutual funds? How can direct mutual funds be bought? What should a beginner opt for?
Direct plans carry a lower expense ratio as compared to regular plans since there are no commissions involved. An advisor earns around 0.5 to 0.75 bps as fees for his advisory. It is like directly buying medicines from a chemist against getting a prescription from a doctor. If you know the medicine, you can buy it yourself, but if you need specialist advice you have to go to an expert.
There are thousands of funds managed by different companies and several parameters to consider when choosing a fund. These parameters range from choosing a fund house to choosing the right fund which suits your objective. Any good advisor will always look for these parameters before suggesting a fund, depending on your goals, risk appetite, and also taking care of investor’s behaviour for achieving the desired amount for the goal. So, if a person can manage all these things by himself, he should opt for direct plans. My suggestion for a beginner would be to always approach an expert for advice because he knows his subject well and will do the handholding during ups and downs.
- Puneet Oberoi, Founder, Finadwise