How Are Regular Plans Different From Direct Plans?

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Although people understand what regular and direct funds are. But, when it comes to differentiating between the two, most people find it confusing and lack proper justification. Today in the race to ace, people want fast results and rarely stop to find answers of the simplest questions that float around them. Here, to clarify these basic things, in the coming points you will get to read not only the difference but also which one is best among them. First, let’s read what these two funds are.

What Are Direct Funds?

Direct funds as the name suggests can be invested in directly through the asset management company itself. There is no involvement of any distributor or intermediary and therefore is free from any fees payable related to the same. These plans were categorized separately with effect from January 01st, 2013 before which the NAV of this was same as that of the distributor plan.

What Are Regular Funds?

Regular funds are those funds that an investor invests in through a broker, advisory, or a distributor. There may or may not be any direct additional fees payable for the services or advises that an investor might receive.

Regular Plans vs. Direct Plans

So, here are the points that you have been waiting to read that differentiate between these two plans that are offered under a scheme. These have been shortlisted after thorough research conducted by the experts of MySIPonline. Let’s read what their take is on the same.

1. On the Basis of Expense Ratio

Investors must be aware of the expense ratio that every scheme holds. When we talk about the regular funds, this ratio is a little more by 1 to 1.5% than that in direct funds. This happens as a result of the commission involvement that comes with regular plans which is payed to the intermediaries.

Above is the table showcasing the top equity funds and the expenses ratio under their direct and regular plans. It can be seen that in all the schemes the expense ratio of direct plan is lower than the other.

2. On the Basis of Net Asset Value

NAV or the net asset value which is the per unit value in mutual funds is always little higher in case of a direct plan under various schemes compared to the regular plan. In the below table it can be seen that all the NAV of different schemes is at least Rs. 2 higher in the direct plan.

3. On the Basis of Investment Platform

The is the another difference between these two plans that is also a common one. You can invest in direct plans directly through AMC or its online portal itself and no other medium. In case of regular plans, it is seen that the investment is made through a registered intermediary or a distributor.

Which Is the Better One Among the Two - Regular Mutual Funds or Direct Mutual Funds?

You already have an idea by now about the differences in both the plans and where they overpower each other. It appear that on one side, while the direct plans have low expense ratio on the other side its NAV is high. It should be understood here that even though the investor will receive the units at high net asset value, at the time maturity, it will still be more than the NAV of regular plans.

Which one is better among the two will depend largely on the type of investors and their need. As for a new investor regular plans would be a better option because they will require proper assistance as they are beginners and the market is full of risk. The experienced ones may invest directly as they already know the pros and cons of the same.

Conclusion

The ultimate aim behind any investment is to reach one’s financial goal and earn handsome returns whether the plan is direct or regular.

• Before finalizing any scheme no matter which plan you choose, one should go through the performance, risk, fund manager’s strategies, etc. to understand if it is really worth investing. All an investor should focus on is to choose the right plan very cautiously and sensibly as it is said mutual funds are always subject to market risk.
• Make sure that if you are willing to invest in a regular plan, the distributor is unbiased and provides genuine help. As it is better to be alert before rather than regretting later on.

This was all about the two plans, direct and regular that you may invest in under various mutual funds. If there is anything that you want to discuss or have some queries regarding the same, feel free to contact the experts here at MySIPonline anytime.

Read our latest published blog: Best SIP Regular Plans