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 to choose between a direct and regular plan in a mutual fund?
When you invest in mutual funds through an intermediary, you are investing through a regular plan. Investing through an intermediary has some advantages, for example, your distributor can help you in selecting appropriate schemes for your short- and long-term goals. The distributor will help you complete formalities such as KYC, setting up SIP/SWP/STP as well as filling out the form in case you are a first-time investor. The distributor can also help adjust your portfolio during the course when your financial goals change or your portfolio needs a rebalancing to record profits or maintain your desired asset allocation. The intermediary also provides services such as making sure you stay up to date with your portfolio, updating your personal data whenever necessary, such as a change of address, a candidate, etc.
However, if you are someone with a fair idea about the financial markets, the different types of mutual fund schemes available, such as comparing the performance of the scheme, understanding investment objectives, risk factors and portfolios of funds, understanding which type of fund is best suited to your financial goals, investing in a direct plan could be beneficial for you. This is because you will save on commission. If you feel comfortable investing online, doing your KYC, and setting up ECS debt for a SIP, you can definitely consider investing directly in mutual funds.