Which plan is better for me: Direct or Regular?
When choosing between direct and regular mutual funds, investors must consider their level of expertise and time. They should also assess their willingness to manage investments actively. Both plans invest in the same assets and are managed by the same fund manager, but the key difference lies in how you invest and the associated costs.
Regular mutual funds are bought through intermediaries such as brokers, agents, or financial advisors. These professionals provide valuable services like assessing your risk tolerance, goals, and financial plans. They also help select the best fund options for you. However, this guidance comes at a cost. Intermediaries receive commissions from the Asset Management Company (AMC), which are included in the expense ratio. As a result, regular plans tend to have a higher expense ratio than direct plans, which can reduce long-term returns.
Direct mutual funds, introduced in 2012 by SEBI, allow you to invest directly with the AMC, bypassing intermediaries. This eliminates the commission or distribution fees, resulting in a lower expense ratio and potentially higher long-term returns. The Net Asset Value (NAV) of direct plans is higher than that of regular plans due to the absence of fees. While this may seem beneficial for investors, it’s essential to consider whether you have the knowledge and time to manage your investments. Investors in direct plans must conduct their research, track performance, and adjust as needed, which may not be ideal for those with limited market expertise.
| Feature | Regular Mutual Funds | Direct Mutual Funds |
| Investment Process | Through an intermediary (advisor/broker) | Directly with the Asset Management Company (AMC) |
| Expense Ratio | Higher due to intermediary fees | Lower as no intermediary is involved |
| Returns | More than Direct Plan | Better than Regular Plan as expenses are lower. |
| Convenience | High, with advice and support | Requires more self-management and research |
| Professional Advice | Access to expert advice | No advice; self-research needed |
| Ideal For | Beginners or those seeking support | Highly Experienced investors with market knowledge, Who can manage their behaviour in volatile market |
| Disadvantages | Only fees, lower returns | Requires effort and time for portfolio management |
You might think that direct plans are always better since they have a lower expense ratio, which could mean more money for you in the long run. But the decision isn’t as simple as it seems. It’s like trying to treat yourself without a doctor or doing your taxes without an accountant. It could work for some, but it might cause problems for others. Direct plans are a good option for knowledgeable, disciplined investors who can do their own research. These investors are comfortable managing their investments, tracking their performance, and making necessary changes.
However, most people benefit from the help of a financial advisor. A good advisor can guide you in choosing the right scheme, help with paperwork, track performance, and discipline you. They can also prevent you from making rash decisions when markets change. If they’re helping you in these ways, it’s only fair that they are compensated for their expertise. The choice between direct and regular plans depends on your ability to manage your investments and make the right decisions. Choosing the wrong scheme could cost you more than a regular plan’s higher expense ratio.
