Direct vs Regular Mutual Fund
Mutual Fund Industry is growing at a fast pace. It has shown a great potential with time. According to the Live mint, the net flows in equity surged 54.4% in June. The investment in mutual fund jumped to 7,675 crores from the previous month. We are already seeing a gradual shift in the household saving and it’s going down. The middle class is now slowly moving towards investing domain. For them, the simplest and easiest way to invest in the capital market is Mutual Fund. Most of the early investors have no idea about it.
A mutual fund is basically an entity which pools money from many investors to invest in different securities such as equity, debt and other assets. They are broadly categorized into two parts: Direct Plan and Regular Plan.
Direct Plan: It allows an investor to invest in the AMC, with no distributor to facilitate the transaction. Basically, one can directly purchase the fund from the company offering the fund. SEBI has introduced the direct mutual funds plan in 2013, making it mandatory for every AMC to make the option of Direct Plan.
Regular Plan: It allows an investor to invest in the mutual fund through the intermediary such as advisor, broker or distributor.
But few understand the difference between them and how it impacts on their respective investment. Let’s look at the key differences:
- Direct has a low expense ratio compared to the regular plan.
- The return of the regular is lower compared to the direct.
- In the case of direct plan, investment is based on own research and analysis, while in the case of regular, the expert advice is available.
- For a new investor regular will be more convenient than direct.
- In the case of regular plan, a commission fee is paid by the investor, while in the case of direct plan there is no such fee.
These two plans are just the options provided by the mutual fund house to the investor. Depending upon their investment objectives, one can buy any of these funds. In the case of direct plans, the commission is added to your balance, thereby reducing the expense ratio of scheme and increasing the return over the long term. Let’s look at the difference in each fund category, according to value research:
|Fund Category||Regular Plan||Direct Plan||Differences|
As, one can see that the difference between both the plan is close to 1% in some cases. So, it clearly shows that one’s earnings will be lower between close to 0.50%-1% annually, which in the longer term will have a higher impact on the returns.
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*Mutual fund investments are subject to market risks. Please read the scheme information and other related documents carefully before investing.