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Why is the NAV for Direct Mutual Funds more than Regular Mutual Funds?

To understand why the NAV of a Direct fund is higher than a regular fund, one has to understand the concept of expense ratio of a mutual fund.

The expense ratio, a percentage of your funds, is the money that you pay the fund house towards managing your money, on your behalf.

For example, if you’re investing Rs 5,000 in a fund with an expense ratio of 1.5%, then you are paying the mutual fund Rs 75 a year to manage your money.

It is essential to understand that the fund’s NAV is arrived at after deducting a fund’s expense ratio. Hence, the higher the expense ratio, the higher is the deduction and the lower is the NAV. The expense ratio in Regular funds is higher than the expense ratio of Direct funds, which means that the NAV in Regular Funds is lower than in Direct Funds.

Learn everything about Mutual Funds on this module in Varsity.