MUTUAL FUNDS- DIRECT v/s REGULAR PLAN, WHAT TO CHOOSE🤔?

The investment in mutual funds can be done in two ways i.e. directly via company website or through a distributor/advisor of mutual fund. Investing directly via company website is classified as Direct Plan whereas investment through a distributor/ advisor is classified as Regular Plan. Due to rise in financial awareness and easy access to market has encouraged many individual investors to make their own investment decisions. Also, growth of online investment platforms and technological advancements has allowed investors to purchase, sell and get other mutual fund services with no need of human intervention. Considering such financial awareness, technological advancement and elimination of agents, Direct Plan was launched on 1st January, 2013 for all new and existing mutual fund schemes. Thus Direct Plan is popularized with the concept of “DIY” i.e. Do It Yourself. Investing in a Direct Plan is like buying a product from the manufacturer directly, whereby the cost to customer would be lower

Direct Plan and Regular Plan are both part of same mutual fund scheme, which are managed by same fund manager but having different expense ratios.  Now lets have a comparision about both the plans and check its pros and cons:

Expense Ratio consist of operating expense, fund managers and distributors commission. In Direct plan, commission to mutual fund distributor is not payable unlike in regular plan which leads to lower expense ratio. This lower expense ratio in direct plan translates to higher returns on investments which keeps on compounding over the years. Thus the investment in Direct Plan would be worth more over a period, in comparison to investment in Regular Plan of the same scheme. One can invest in mutual funds by physical as well as in demat form. The comparision of investment in direct vs regular plan of same scheme is as under:

From the above table, it can be observed that the same amount of investment i.e.Rs. 30,00,000/- having a change in plan from regular to direct plan can help generate additional wealth of Rs.10,72,085/-. One must also know that high NAV does not mean the fund is expensive. In fact, high NAV indicates a good performance of the scheme over the years.

So which Investment Plan should Investors choose?

Direct Plans are for those who prefer to invest DIRECTLY in a mutual fund scheme without the help of any distributor/agent. Direct Plan is suited for those who understand what kind of mutual funds are needed for different kinds of investment needs and are capable of researching them independently and also able to identify/shortlist the funds to invest in. Thus, Direct Plan make sense only if you have adequate knowledge and capability to make its own decisions before investing. Regular Plan is suited for one who always require any agent, who guides them to select best mutual fund schemes. However if you are a new investor and having lack of confidence,  then it is better to seek help of a mutual fund distributor and start investing in a Regular Plan and eventually switch to Direct Plans.

How To Invest in DIRECT PLAN?

You can invest in direct mutual funds through any of the following modes:

Ø Asset Management Companies (AMC)

You can invest in a mutual fund directly through the Fund House. Additionally, while investing in mutual funds through AMCs, you will have to open multiple accounts with different AMCs of the funds you wish to invest in.

 

Ø CAMS/KARVY

CAMS and KARVY are leading Register and Transfer Agents (RTA) for mutual funds. It has developed an online single-window portal to assist with the financial needs of its customers. To visit website click here CAMS and KARVY

 

Ø Mutual Fund Utilities

Mutual Fund Utility is an initiative taken by various mutual fund houses in order to empower the investors and provide them with a platform wherein they can easily invest their money in various schemes of the participating AMCs and keep a track on their holdings and transactions at one place. To visit the website click here 

Ø Through Zerodha, Groww, Kuvera platforms:

In recent years various financial companies such as Zerodha-Coin, Groww, Kuvera, ET Money, Paytm Money also offers investment in mutual funds through direct plan. However these platforms do charge minimal annual maintainence fee/demat charges. 

The latest AMFI data shows that a mere 15% of retail mutual fund investors currently use the direct mutual fund route. People who have traditionally been using banks, advisors, and brokers, continue to do so for the convenience of not having to change the way they invest, without realizing that last year a whopping Rs 8500 crores was paid out as commissions from their investments without them even realising it!      

Keep Sharing, Keep Gaining!

-          -By CA Dhruval Shah

        You may reach out to me at dhruvalcshah@gmail.com.

Disclaimer: The above blog is for knowledge purpose only. The author will not be responsible for any investment gains or loss, do consult your investment advisor before taking any investment decisions.