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DIRECT plan vs REGULAR plan

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What are DIRECT plans and REGULAR plans?

A DIRECT plan is an investment in a Mutual fund scheme that you make in which you do your own study and analysis, understand the risks and invest yourself without the need of a distributor / agent / broker.

A REGULAR plan is an investment plan in which you seek the help, support, assistance and guidance from a distributor / agent / broker who will assist you in the investment process.

The underlying securities offered by the scheme will be the same for both the type of plans.

Further, you will not be paying any commission directly by yourself when following the REGULAR plan. However, the mutual fund scheme pays them from the corpus of the investment which means that indirectly your money is used to pay them commission.

Further, for the same scheme, a DIRECT plan would give in 0.5 to 1.5% higher returns over a REGULAR plan because the plan does not incur any commission charges to be paid.

So, if you know how to invest, where to invest and the processess involved (which by the way are very simple these days), go for DIRECT plans.

Why select DIRECT plan over REGULAR plan?

Question: Why not use brokers and go directly? Any disadvantages with brokers? I dont think they charge extra for mf? Kindly clarify.

Brokers can offer only REGULAR plans. Hence, the investments returns in such schemes will generally be 0.5 to 1.5% less compared to DIRECT plans (depending on scheme type).

So, when you are investing yourself, a DIRECT plan investor is likely to be get this advantage of 0.5% to 1.5% more than what REGULAR plan investors get just because you are bypassing the broker route even when everyone are investing in the same scheme.

Please note that the percentage of 0.5 to 1.5% is per year.

The returns will make a substantial difference over time.

The longer your SIP runs or you hold the investment, the more the difference will be.

Also for those fans of distributors and brokers out there:

Why take advise from websites and doing your own research and yet end up invest through them? If you are so much interested in giving money for free for distributor, give it a chartiy ;)

Transacting in DIRECT plan in a folio that had a REGULAR plan investment

Question: Sir I have reliance tax saver and axis long term adv through fundsindia. Can I purchase additional to these folio direct? I. E. DIRECT plan from axis and reliance mf site online?

I do not make any specific comments on FundsIndia.

Firstly, understand that investment websites such as FundsIndia and even stock borkers such as Zerodha do not offer DIRECT option for MF investment.

Zerodha has made some changes and is now offering DIRECT plan investments (however, they charge a small fee from the investor) and still not lucrative.

Secondly, they might not offer the post-sale support that they might have promised unless you know the people personally or stay in touch all through the period of your investment done through them.

Personally, it is always better to read, learn and get educated and then invest rather than depending on a some person or a tool to make decisions.

There are so many resouces online and some mutual fund houses conduct investor education programs to improve awareness. Do go to them even if you feel you know the topic.

If you are already investing in mutual funds through a broker, you can still transact in the same folio from outside the broker.

For instance, you can make all transactions by yourself directly by placing your request on the mutual fund house website or with the registrar or even by giving a paper transaction request.

All you need to have in you hand is some basic information:

1. Folio number of scheme / fund you invested in

2. Email and mobile number that was mentioned in the folio

You can get these details by looking at your Statement of Account.

Once you have these in hand, you can create a login at the mutual fund website or with registrars such as MyCAMS.

After login in them, you will be able to access your existing investment that was already done through the broker.

You can also make new investments in DIRECT plans, or switch the investments made in REGULAR plan to DIRECT plan or other transactions such as redemption.

What factors are common between REGULAR and DIRECT plan?

There will be several things that will be common between a REGULAR and a DIRECT plan.

These include:

  • Portfolio of the scheme
  • Investment Objective
  • Asset Allocation Pattern
  • Investment Strategy
  • Exit Load
  • Risk factors
  • Facilities offered
  • Other terms and conditions

Why is there substantial difference in NAV between DIRECT and REGULAR plans?

It so appears that the difference in NAV between DIRECT and REGULAR plans increases over a period of time.

This is because, as time progresses, DIRECT plan schemes tend to give slightly better returns because of the positive impact of lower expenses (compared to the REGULAR plan).

This will increase the NAV.

Further, because of its increased expenses in the REGULAR plan, the gap in NAV (and returns), over a period of time, increases.

Important: High NAV does not always mean bad for the investor.

Additional Reading

How much would I save if I take the direct route over regular plans for SIP mutual fund investments?

https://www.quora.com/How-much-would-I-save-if-I-take-the-direct-route-over-regular-plans-for-SIP-mutual-fund-investments

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