What is the difference between direct and indirect investments?


Quick Answer

Direct investments are those in which the investor owns the particular assets himself, while indirect investments are investments made in vehicles that pool investor money to buy or sell assets, according to Red Mountain Asset Research. A direct investor invests in the asset itself, whereas an indirect investor invests in the expertise of the people using his investment money, notes the National Association of Real Estate Investment Trusts.

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What is the difference between direct and indirect investments?
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Full Answer

A direct investor is wholly responsible for the asset, has control over it, reaps all of the rewards and assumes all of the risks, according to Property24.com. Indirect investors let others buy and sell the assets, while assuming no ownership of the assets and taking no responsibility for them, reaping only a share of any profits that are distributed among all of the indirect investors.

Examples of indirect investments are mutual funds, pension funds and 401(k) plans, explains CNN Money. They can also be REITs, which are real estate investment trusts. An REIT could use investor money to buy large commercial properties such as malls, office buildings and hotels. An example of a direct investment would be owning a house and acting as a landlord or hiring a property manager, being responsible for upkeep and taxes, keeping all of the rent collected and assuming all of the gains or losses when the property sells.

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