Regular vs Direct Mutual Funds

Expense ratio is one of the aspects that would differentiate between Direct Plans and Regular plans.

If you are invested in Regular plans, you must be getting additional services from the distributor. 

What should you check if you are invested in Regular Plan? 

• Is your portfolio getting reviewed every 6-12 months and in line with your asset allocation strategy and Risk appetite?
• Is your distributor providing all the tax saving options for the invested mutual funds regularly based on the budget planning every year?
• Is your portfolio churning the least expected returns in the span of 2-3 years?
• Is your regular plan just an interface or aggregator? (Say for example you visited a local bank branch, and you were informed about mutual funds and invested in them as you were excited checking the past returns)
• Is there a strategy in place to reach your goal?
• Did the mutual fund distributor talk about Capital appreciation, Capital preservation and Captial conservation phases for your goal?

What would you need to do yourself if you are a Direct Mutual fund investor?

• You should check the credibility of "Fund manager" and "Fund house" as well. (Check out what happened during covid with one of the international fund houses (Have Franklin Templeton mutual fund investors got closure? - The Economic Times (indiatimes.com)) Source: Economic Times
• Check the fund asset allocation strategy and for the changes in allocation at least once in 6-12 months.
• You should keep an eye on liquidity stress test of your invested fund, after all who would want to invest when you know liquidating the fund is not easy (This is a major risk in small and mid-caps across fund houses).
• Analyzing the ratios whether the fund is performing to the best compared to the benchmark.
• Check on the tax implications of returns and get the best without paying any taxes looking at the budget news every year. (Tax implications may change in budget plan)

In the end, if your Mutual fund distributor is able to generate you a 1% additional return considering your risk appetite and risk tolerance, it would make a huge difference and commission that goes the distributor would become peanuts considering the services and the corpus that he/she was able to accumulate for you.

To sum up, if an investor has time to do research and has the ability to optimize the returns with minimal tax implications on the returns then Direct Mutual funds are better. 

            On the other hand, if an investor is not market expert and cannot afford to put more time into market news and cannot afford to keep an eye on the mutual funds all the time, then he can rely on MF distributor. Remember to ask right questions to distributor and get all the information before investment, genuine distributor will do a financial health check and recommend the investment strategy for your goals considering your risk appetite and risk tolerance which plays a crucial part during market volatility.

Venkata SRB
AMFI-NISM MF certified
Insurance Advisor (Health + Life + Motor)