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Direct Plan vs Regular Plan of Mutual Funds

All of us are investing in mutual funds to accomplish our goals and it’s a good thing and we should keep doing this as this has the potential to give highest returns over all other asset classes in the long run.

But, one thing interesting here, is that majority of the people investing in mutual funds are investing in the Regular Plan of the funds even though the Direct Plans have been available to us from 2013 onwards.

The possible reasons for this are –

  1. Don’t have much knowledge about Direct Plans
  2. Need a broker or a financial advisor to help identify the funds
  3. Invested in Regular Plans but don’t know the process to switch to Direct Plans
  4. Regular Plans being easily accessible through various online channels and so on…

But, by remaining invested in Regular Plans, the investors are missing out on 1 thing; the extra ~1-1.5% return which can make a huge difference in the final amount accumulated if you are investing for the long run.

Similarities between Regular & Direct Plans:

Both the Regular and Direct Plans are exactly the same from the Fund’s perspective. They both have the exact same scheme, the exact portfolio, the exact investment strategy, etc. and run by the same fund managers.

Differences between Regular & Direct Plans:

  • Regular Plan costs more than Direct Plan

How so, you ask?

Under the Regular Plan, the AMC pays the broker a percentage as commission. This commission comes from nowhere but from your own investments.

But, in the case of Direct Plan, there are no commissions paid to anyone as there is no broker involved here and the investor is taking care of all the activities by dealing with the AMC directly and hence you save that percentage amount which was going to your broker in case of Regular Plans.

Also Read: Top Reasons to sell your mutual fund investments

  • NAVs and Returns are different in both the Plans

Here, the Expense Ratio comes into picture which is nothing but the annual charges you pay to the AMC for investing into a particular scheme.

The expense ratio of Direct Plans is lower than the Regular Plans because of the savings being made in terms of commissions being paid out to brokers.

These savings then gets added to the returns of the Scheme leading to higher NAV (Net Asset Value) value which in turn leads to higher returns for the investors.

Thus, less expense ratio, higher NAV, higher returns for Direct Plan investors compared to Regular Plan ones.

Who should Invest in Direct Plans?

  1. Investors who want higher returns
  2. Can directly interact with the AMC
  3. Selecting Mutual Funds on your own
  4. Do your own research
  5. Willing to take care of all the documentation process yourself and so on…

If you are the One, who can take care of all the above tasks, you should start investing in Direct Plans and dump Regular Plans.

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