Direct and regular mutual funds offer different options for Non-Resident Indians (NRIs), and Overseas Citizens of India (OCIs) to invest. Direct mutual funds allow you to buy units directly from the asset management company (AMC), without brokers and intermediaries, which results in lower expense ratios and potentially higher returns. On the other hand, regular mutual funds involve investing through intermediaries like brokers or financial experts who provide valuable guidance but come with higher expense ratios due to commissions. Find out all about direct vs regular mutual funds, the difference between direct plan and regular plan, charges, and which is better between direct and regular mutual fund plan in this blog.
Understanding the Difference between Direct vs Regular Mutual Funds
For example, Manya, an NRI in Canada, wanted to invest in mutual funds. Initially, she was inspired by her cousin Ananya, who switched from regular to direct mutual funds for lower costs. However, Ananya struggled with managing her investments independently and eventually returned to using an advisor for better risk-adjusted returns. Manya, valuing both control and expert advice, decided the potential for better returns with professional guidance outweighed the cost savings of direct investing and went for a regular mutual fund for a well-managed portfolio and stress-free experience.
Also read: How can NRI Invest in Mutual Funds in India?
What are Direct Mutual Funds?
Direct mutual funds are investment plans that allow NRIs and OCIs to buy units directly from the asset management company (AMC), avoiding brokers and intermediaries. This direct approach eliminates the need to pay commissions, resulting in lower expense ratios compared to regular mutual funds. Additionally, NRIs and OCIs investors can benefit from higher returns over time. You can easily invest in direct mutual funds using the fund house’s website or other platforms that offer these options. Their cost-efficiency makes them a compelling choice for many investors looking to maximize their returns by minimizing investment expenses.
Also read: ๐๐ฒ๐๐ ๐ ๐๐๐๐ฎ๐น ๐๐๐ป๐ฑ๐ for NRI in India 2024
What are Regular Mutual Funds?
Regular mutual funds involve investing through intermediaries like brokers or financial advisors with an ARN (AMFI Registration Number) authorizing them to deal with mutual funds. These intermediaries give valuable help and guidance to investors to understand various mutual fund schemes and investment options. But, regular mutual funds come with higher expense ratios because a portion is paid as commissions to the intermediaries. Even with the higher cost, many investors find the expert advice and assistance beneficial. The mutual fund house pays the commission directly to the intermediary, so investors don’t incur extra fees beyond the expense ratio.
Also read: Best SIP to Invest in 2024 โ Top 10 SIP Mutual Fund Plans for NRIs/OCIs
Difference between Direct and Regular Mutual Funds
| Categories | Direct Mutual Funds | Regular Mutual Funds |
| Net Asset Value (NAV) | Higher | Lower |
| Investor Control | Keep full control over investment decisions | Investor has control, but intermediaries give suggestions that help increase you with overall portfolio. |
| Commission to Intermediaries | No commission given | Between 0.1% to 2% |
| Expense Ratio | Lower because of due to no intermediaries | Higher because of due to commissions |
| Returns | Higher | Lower |
| Fund Selection | You can freely pick your funds | Financial experts will find and recommend funds based on your unique investment requirements like risk appetite, investment horizon, financial goals, etc. |
| Distribution Channels | Mutual fund company’s website or online platforms | Through banks, financial advisors, and other intermediaries |
Also read: How understanding the Rule of 8-4-3 can turn your Rs 30,000 monthly into Rs 1.5 cr?โโ
Direct vs Regular Mutual Funds – Which Is Better for NRIs/OCIs?
As an NRI living abroad If you are not able to decide which mutual fund is best for you to invest in – direct vs regular. Here are some possible situations that help you decide which option is good for you:
Go for Direct Mutual Funds if:
- You have an expert or have a great skill to shortlist the most fitted funds for your financial goals.
- You have the time to look into funds so that you can manage, re-assist, and re-balance your holdings from time to time as it is very important.
- You need to be aware that you do not want to pay that extra amount as part of the fundโs total expense ratio.
Go for Regular Mutual Funds if:
- You have an expert guiding you to pick the right mutual fund for your investment journey knowing your capacity to hold risk and your goals
- You want to have a stress-free and easy investment experience and have an expert manage your investments on your behalf.
- You do not mind paying that extra commission to experts.
โHere’s an example that can help you to understand it better.
Tanya, an NRI in Canada, wanted to invest in mutual funds – Inspired by her cousin Riya.
Riya started investing with a financial expert but found the fees high. Later she switched to direct mutual funds for lower costs but struggled with managing them independently and getting the right things done. She in the end returned to an advisor for better risk-adjusted returns and portfolio management, even after she knew that the experts take high commissions.
After which Tanya, valuing both control and expert advice, decided the potential for better returns with professional guidance outweighed the cost savings of direct investing and she opted for a regular mutual fund for a well-managed portfolio and stress-free experience.
Also read: What is the 15x15x15 Rule In Mutual Funds for NRIs?
Does SBNRI offer Regular or Direct Mutual Funds?
Currently, SBNRI offers only regular mutual fund investments, and direct funds are not available at the moment. Regular mutual funds provide the advantage of ongoing professional guidance, including continuous monitoring and personalized advice from professional advisors.
SBNRI is an authorized Mutual Fund Distributor platform & registered with the Association of Mutual Funds in India (AMFI). ARN No. 246671. NRIs willing to invest in mutual funds in India can download the SBNRI App to choose from 2,000+ mutual fund schemes or can connect with the SBNRI wealth team to better understand Mutual Fund investments.
NRIs can now download the SBNRI App and choose to invest in different NRI mutual fund schemes in India with ease. You can also get detailed investment advice from experts at SBNRI. Also, visit our blog and YouTube channel for more details.
What are SBNRI charges for investing in Regular Mutual Funds?
SBNRI is a completely free platform built for NRIs/OCIs. There are no hidden fees or annual maintenance charges. SBNRI earns from its business partners and does not charge any fee for NRIs/OCIs to use its platform for investing in regular mutual funds.
Wrapping up
Now you know about direct and regular mutual funds. Direct mutual funds offer lower costs and higher returns for those who can manage their investments independently. Regular mutual funds provide expert guidance and a stress-free experience, despite higher expenses. However, if you don’t know much about the investment, a regular plan will suit you but if you are someone who has knowledge then you can go for a direct investment option. Investment in mutual funds always has some risk between moderate to high. That is why you should be updated and invest according to your risk tolerance to have a secure financial future.
Disclaimer: This blog has been written exclusively for educational purposes. The securities mentioned are only examples and not recommendations. It is based on several secondary sources on the internet and is subject to changes. Please consult an expert before making related decisions. SBNRI does not intend to predict future returns, please read all related documents before investing.
FAQs
Can OCI holders invest in mutual funds?
Both NRI and OCI can invest in mutual funds. You can do it through Direct mutual funds or Regular Mutual Funds.
Is it better to invest in direct or regular mutual funds?
Direct mutual funds offer lower costs and higher returns for those who can manage their investments independently. Regular mutual funds provide expert guidance and a stress-free experience, despite higher expenses. However, if you don’t know much about the investment, a regular plan will suit you but if you are someone who has knowledge then you can go for a direct investment option.
Can NRI invest in direct mutual funds?
Yes, an NRI can invest in mutual funds in India as long as he/she follows the Foreign Exchange Management Act (FEMA).
Can OCI holders have a demat account?
NRIs, who hold a valid Indian passport or Overseas Citizenship of India (OCI) card, are eligible to open a Demat account. NRIs can hold both NRE and NRO Demat accounts, depending on their investment objectives.
Can NRIs become crorepati from mutual funds?
Yes, NRIs can invest in various mutual fund schemes in India. If an NRI follows the rule of 15x15x15 and invests Rs 15000 a month in SIP for 15 years with an expected rate of return of 15%, then they will become crorepati after 15 years with a wealth corpus of Rs 1 crore.
Is SBNRI free to use for investing in India?
Yes, SBNRI is a completely free platform built for NRIs/OCIs. There are no hidden fees or annual maintenance charges. SBNRI earns from its business partners and does not charge any fee for NRIs/OCIs to use its platform for investing in regular mutual funds or any other asset class like bonds, pre-IPO, PMS, micro-VC, commercial real estate and more.
