A mutual fund is a professionally managed company that collects money from many investors and invests it in securities such as stocks, bonds and short-term debt, equity or bond funds and money market funds.
Mutual funds are a good investment for investors looking to diversify their portfolio. Instead of betting everything on one company or sector, a mutual fund invests in different stocks to try to minimize portfolio risk.
The term is typically used in the US, Canada and India, while similar structures around the world include the SICAV in Europe and the open-ended investment firm in the UK.
How is the direct plan different from the regular plan?
Imagine planning a holiday in the Maldives and not having much idea about the place. How would you plan your trip? You can call a travel agent and book your trip or spend hours looking for places to stay, places to visit, modes of transport, etc. and finally draw up your itinerary, make your reservations. The difference between the two is that you choose to take help and do it through someone against doing it completely on your own.
Direct and regular plans also differ equally. When you invest in a mutual fund through a distributor, your money is invested in a regular plan. When you invest directly with a fund, your money is invested in the scheme’s Direct Plan. While both plans give you access to the same scheme and portfolio, they only differ in their NAVs and expense ratio. Since a commission must be paid to the distributor in the case of a regular plan, the expense ratio of regular plans is higher than that of direct plans. This leads to a slightly lower NAV of the regular plane than the direct plane of the same scheme.
Investors who feel comfortable researching and managing their investment portfolio on their own can opt for the direct plan otherwise the regular plan is more suitable.
