Direct Plan Vs Regular Plan in Mutual Funds Investment


I am confused?
There is a big hoo-ha in the market & media now a days related to “direct plans”.
What is a direct plan? How does one benefit from a direct plan? And compared to regular plan, which is better?

Let’s first understand Mutual Fund charges.
Mutual fund (MF) investments come with an inbuilt fee structure or charges, which is certain percentage of the amount invested. This charge, which is usually between 1.75% to 2.5% for equity schemes annually, is debited on the total investment made or the AUM (Asset under management) every year. In simple terms, if one wants to invest 1lac in some equity MF scheme, where annual charges is 2.5%, Rs.2500/- will be debited by the AMC (Asset management company) towards

charges & balance Rs.98000/- will be invested & units offered based on the current NAV (Net asset value).
This fees charged by the AMC on first time investment & on AUM annually later (from 2nd years onwards), typically covers; AMC professional fund management cost, regular operational costs which include investment management and advisory fees, sales/agent commissions and ongoing service fees, legal and audit fees, registrar and transfer agent fees, fund administration expenses, and marketing and selling expenses. All these expenses charged to an investor are together called the ‘total expense ratio’ (TER); it is an annual charge on AUM in percentage terms.

What is a direct plan? & its comparison with regular Plan?
A Direct plan is what you buy directly from the mutual fund company, which also means one has to first shortlist funds on their own & finally go to each AMC website and register/ execute same on their own.
Whereas a Regular plan is what you buy through an advisor, broker or distributor (intermediary). In a regular plan, the mutual fund company pays commission to the intermediary, as entire handholding towards advice, registration & execution is done by the intermediary. This is then recovered as an expense from the plan. In mutual fund speak, the expense ratio is slightly higher for a regular plan. [ Check best performing mutual funds to pick for 2016]

Which is better?
From above explanation, definitely direct plan is better, as ultimately it impacts on the ROI (return on investment), which becomes higher due to less cost annually.
However, the comparison is not that simple. In a way, the difference is like a fee you pay to your doctor, lawyer or CA for their professional advice. Where you also have an option of going on your own thru self-use websites, with zero or fraction of the cost. Whether you should pay that fee or not depends on the investor’s own capability and the quality of service you get.

What are you getting when you invest through a regular plan?
1. Investment recommendations: How to shortlist the right scheme, its comparison with its peers & other parameters from 100’s of MF schemes available in the market. In short, this is what an advisor offers, which is very critical for any investment. The plan (regular or direct) is a secondary consideration.
2. Investment services such as periodic review: By reviewing your portfolio and helping you rebalance, your advisor would further improve the performance of your holdings and get you more return.
3. Additional services like facilitating your investment & tracking your portfolio: This is not simply a question of saving time and effort. Most people simply won’t do it and neglect their portfolios resulting in poor returns and, sometimes, even lost money because they don’t have a record of their investments.
So, if you are a diligent investor with deep knowledge, meaning that you can pick and track your own mutual funds, then the direct plan is better.

But for most of us, however, we require sound & balanced recommendation, which needs to be supported with a technology platform, such that one can manage, track & execute investments with ease. In short regular plan is better.

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Manoj Chahar
Founder & Storyteller at
Manoj is the founder of, with 15 years of corporate experience & expertise in financial markets. Manoj has corporate stints with Kotak Securities, IIFL group & Philips India. He holds an MBA (PGDM) degree from Symbiosis (SIMS) Pune.
His interests include birding & adventure activities.

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