Financial Awareness Level
Direct Plans vs Regular Plans - What's the Difference?
When investing in mutual funds, you often come across two options: direct plans and regular plans. Understanding the difference between regular and direct plans can help you make an informed investment decision. This guide explains the key distinctions, benefits, and which one might be best suited for you.
What is a Direct Plan?
Direct Plans are an option under mutual fund schemes where investors can buy the units directly from the AMC, without any intermediary involvement. The expense ratio is typically lower in Direct Plans since there are no distribution costs involved. Here are some key features of Direct Plans:
- Purchased directly from the AMC on its website or online platforms.
- Carry lower expense ratios since there are no distribution costs.
- Suited for investors who can manage investment decisions themselves and don't require professional help.
- Has the potential to earn comparatively higher returns over a period on account of lower expense ratios.
What is a Regular Plan?
Regular Plans are an option under mutual fund schemes where investors buy units through intermediaries like distributors or brokers. The AMC pays a commission to these intermediaries for selling the mutual fund schemes. The additional distribution effort increases the expense ratio in Regular Plans as compared to investment made through Direct Plan. Here are some key features of Regular Plans:
- Purchased through intermediaries called distributors or brokers.
- Carry higher expense ratios to meet distribution costs.
- Suited for investors who require guidance from mutual fund brokers or distributors and help in investment decisions.
- Returns will be comparatively lower on account of higher expense ratios.
Difference Between Direct and Regular Plan
| Feature | Direct Plan | Regular Plan |
|---|---|---|
| Expense Ratio | Lower (i.e. TER of Regular Plan less Distributor Commission) | Higher (to the extent of Distributor commission) |
| Returns | Higher due to lower expenses | Sightly lower returns due to commission commission |
| Intermediary Involvement | No intermediary (self-managed) | Bought through brokers/advisors |
| Investment Process | Directly through AMC or platforms | Through brokers or banks |
| Who Should Invest? | Experienced investors, DIY investors | Those needing advisory services |
Which is Better: Direct vs Regular Plan?
- Choose direct plan if you are comfortable managing your investments and want relatively higher returns over time.
- Opt for regular plan if you prefer professional guidance and assistance in fund selection.
Why Choose Mutual Fund Direct Plans?
Direct Plans are ideal for investors who are well-versed in investment matters and don't require professional help. Here are some reasons why you might choose Direct Plans:
- Lower expense ratios mean higher returns over the long term.
- In Direct Plans there are no intermediaries involved.
Why Choose Mutual Fund Regular Plans?
Regular Plans work well for investors who require professional expertise and guidance in making investment decisions. Here are some reasons why you might choose Regular Plans:
- Brokers or distributors can provide guidance in investment decisions and scheme selection as per the risk profile of investors.
- Brokers or distributors can assist in the MF investment process, including KYC documentation.
- Brokers or distributors can help investors stay updated on their investments.
Conclusion
The difference between direct and regular plans mainly lies in cost and returns. While direct plans offer better returns due to lower costs, regular plans provide advisory support for investors who need assistance. Assess your investment knowledge and goals before making a choice!
For further details check the link below: Direct vs Regular Plans - Key Differences Explained
Disclaimer:
The information is for general purposes only and not an investment advice. Readers should seek professional advice before taking any investment related decisions.
MUTUAL FUND INVESTMENTS ARE SUBJECT TO MARKET RISKS, READ ALL SCHEME RELATED DOCUMENTS CAREFULLY.
FAQ Section
Can I switch from a regular Plan to a direct plan?
Yes, you can switch from a regular plan to a direct plan by submitting a switch request to the AMC. However, exit loads and capital gains tax may apply.
Which type of plan offers better returns?
Direct Plan typically offer relatively higher returns than regular mutual funds due to their lower expense ratio to the extent of distributor commission.
How do I invest in a direct plan?
You can invest in direct plan through the fund house’s website, online investment platforms, or mobile apps.
Are regular plan more secure than direct plan?
Both direct and regular plan invest in the same underlying securities. The difference is only in cost and intermediary involvement, not security.
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Disclaimer
An Investor Education And Awareness Initiative Visit https://www.hdfcfund.com/information/key-know-how to know more about the process to complete a one-time Know Your Customer (KYC) requirement to invest in Mutual Funds. Investors should only deal with registered Mutual Funds, details of which can be verified on the SEBI website (www.sebi.gov.in/intermediaries.html). For any queries, complaints & grievance redressal, investors may reach out to the AMCs and / or Investor Relations Officers. Additionally, investors may also lodge complaints directly with the AMCs. if they are not satisfied with the resolutions given by AMCs, they may raise complaint through the SCORES portal on https://scores.gov.in. SCORES portal facilitates investors to lodge complaint online with SEBI and subsequently view its status. In case the investor is not satisfied with the resolution of the complaints raised directly with the AMCs or through the SCORES portal, they may file any complaint on the Smart ODR on https://smartodr.in/login.
