What are direct mutual fund investments and what are their advantages?

Mutual funds (MFs) are one of the best investment options that offer lucrative ways of growing your wealth. This is one of the reasons why people prefer investing in Systematic Investment Plans (SIPs) and other schemes to direct investments in the stock market. With mutual funds, the risks are lower as Asset Management Companies (AMCs) and fund managers strategically invest the fund money into multiple securities depending on the objective of the fund.

An insight into direct mutual fund investments

In layman’s terms, mutual funds are usually sold through third-party vendors and platforms. However, if the mutual funds are purchased directly from an AMC, without any third-party intervention, they are known as direct mutual fund investments. So, if you want to know how to invest in mutual funds, you are reading the right article!

These kinds of funds are directly offered by the AMC and carry no extra cost of brokerage. They can be considered a better option of investing in the stock market today for investors who have sufficient knowledge of how the markets work.

Opposing views: Direct vs regular mutual funds

There will always be an ongoing debate amongst investors regarding the use of direct vs regular mutual funds. Many seasoned investors do not like to share their wealth and prefer direct mutual fund investments. On the other hand, young investors prefer regular mutual funds since they look for platforms and brokers to get the job done and for guidance.

The fundamental difference is the expense ratio against every mutual fund. The expense ratio is usually defined as charges against the maintenance of the funds, including brokerage fees, marketing expenses, etc. One of the major advantages of direct plan mutual funds is that the expense ratio is lower in comparison to regular funds because there is no brokerage cost involved.

Advantages of direct mutual funds

We have already talked about how investors save on the expense ratio during investments in any direct mutual fund scheme. Well, there are other notable advantages as well, and they are enumerated below:

  • With a lower expense ratio, the returns are also higher for any investor. You may have the same fund from two different places, a direct management company and a broker, and you will find that the earnings on the direct fund will be higher.
  • The net asset value of these funds is also higher in comparison to their regular mutual fund counterpart. Hence, experienced individuals prefer this over regular plans.
  • You can conduct a thorough research on the direct funds of your choice as all necessary data is given on the official website of the AMC. This allows you to make your own decisions without a broker’s bias.

The bottom line

If you have the expertise to invest in a direct fund, you should surely consider it rather than thinking of stocks to buy or stocks to invest in the market. Mutual funds are a safer way of investing in market-related investments and add a layer of diversification to your portfolio.