Direct vs regular mutual fund : dividend payout

Generally, we open a demat account in a bank to buy or sell mutual funds. Another way is to buy it through an agent or broking house by filling a form. In all those cases the Mutual Fund will pay some commission to these entities as you are buying it through them. These are known as regular mode of applying for Mutual Fund units. Now there is one other way to buy and that is directly applying to the Mutual Fund company without any inter mediatory. As there is no inter mediatory the commission is not to be paid to anyone and hence the investor gets a better pricing for its buy order. Due to this initial advantage the return on direct plans is slightly more than that of regular plans. This advantage in terms or returns is generally in the range of 0.2% to 0.5% above the regular plans depending upon the type of fund that is whether it is a debt fund or equity fund or a mix of two.

Another aspect in this matter is that when you buy or sell through an agent or broker then you would get help and advice from him whenever you are in a confusion state or not able to decide the investment steps. But in the direct mode you are on your own and have to study or find out from the available information in the media. So, it is like paying a nominal fee for a service. One should simply not jump for direct plan because it is giving a little monetary benefit but one should also consider the valuable information that an agent can provide in difficult times. Based on these considerations one can take a conscious decision.

Mutual funds can be purchased directly online by an individual by filling an application form. Here there is no middle man and there is no commission to him. So you may get a little more than what you get in the other format. But the variation is very less. It may be a maximum of 0.5%.
We can also buy these funds through a broking house or an agent. You can even do through the Demat account you opened in the bank. Here the mutual fund company may pay a little amount to them

I feel instead of going for direct purchase going through an agent is always better. Of course, he may get some commission. But we will get a piece of better advice from him in our investments. Where we can invest and when we can invest and when we can withdraw. All these important accepts can be detailed by the agent so that we will get good returns. If we do directly and put the money in the wrong place the loss may be heavy and the money we get when there is an agent will be much higher than in the direct trading.

The purchase mode of the mutual funds are of two types one being direct one where the purchaser can open a Demat - account and transaction can be processed by filling up an application form and the payment is made through Demat account. In this process there is no need of the middle man and hence there is no question of offering commission to any one else. Hence the customer may get a better pay out - sometimes greater than 0.5 percent pay out which he might have received by way of indirect one.
The other mode of buying is from the indirect mode where the purchases are effected through the brokers and in case of payment a part of commission is to be paid to such middle men affecting the pay - out to some extent.
While in the former case, the yield in terms of payment is slightly more but such a mode is associated with a risk in absence of any advice from any corner and hence the investment at times may prove to risky. In case of indirect purchase, though the payout may be a little less due to the commission payment to brokers, you remain in touch with your broker providing valuable guidance whether this is the exit time or should remain invested in order to get a handsome return in due course.
Considering the various merits, the indirect options of purchasing the mutual funds would ultimately provide you an attractive returns.