Mutual Fund Direct Plans Vs Regular Plans: Returns Comparison & Analysis

Mutual Fund Portfolio

More than 50 years have gone by since UTI (Unit Trust of India) introduced their first mutual fund scheme in 1964. The Indian mutual fund industry has evolved over the years and has registered more than a six-fold increase in AUM (Assets Under Management) over the last 10 years.

We now have thousands of Mutual Fund Schemes with an option to buy either Mutual Fund Direct Plan or Regular plan. The Direct plans were introduced four years back only i.e., in January 2013.

You might have noticed that till last year the Mutual Fund Direct plans have not been rated / ranked by the Rating agencies as the minimum number of years to award a star rating is 3 years.

Most of the rating agencies like Valueresearchonline (or) Monrningstar have now started awarding ratings / rankings to direct plans also (as most of the direct plans are now 3 to 4 year old schemes).

Mutual Fund Direct plan Ratings rankings Best Direct plans 2017 pic

I have published Top & Best Equity mutual funds to invest in 2017 a few weeks back. In this current post, let us analyze the returns generated by Direct plans and Regular plans of these best mutual fund schemes for the last 3 to 4 years. Let’s also try to understand the difference of returns generated between the two types of plans of a top mutual fund scheme.

In case, you are wondering what are these mutual fund direct plans?, let me try explaining about them..

What are Direct Plans of Mutual Fund Schemes?

Direct mutual funds plans are those where AMC / mutual fund Houses do not charge distributor expenses / trail fees / transaction charges.

When you invest in a mutual fund’s direct plan, you deal with the AMC directly, while in a regular plan you invest through a distributor or advisor.  ‘Direct’ means no intermediaries and you are directly dealing with AMC / Fund-house.

Direct mutual fund schemes have lower Expense Ratio than that of Regular plans. This is the main reason why the NAV of a direct plan will be higher than the NAV of a regular plan of the same scheme. (What is Expense Ratio? – In simple terms, expense ratio is a measure of cost that you pay to the fund house for managing your money. Expense ratio covers everything from fund management fees, operational and marketing expenses to distribution expenses.)

Kindly note that in the case of regular and direct mutual funds, the investment objective, asset allocation pattern, risk factors and the investment mix are same. A scheme’s portfolio will be the same for both, Regular plan and Direct Plan.

Keeping everything else same, a lower expense ratio means lower costs and hence you can get better investment returns. Since everything else (portfolio, stock holdings etc) is exactly same in direct plans and regular plans, direct plans offer better returns than regular plans.

(For more details on Direct plans, kindly read : ‘Direct mutual fund plans – Details & Benefits’)

Best Mutual Fund Direct Plans Vs Regular Plans – Returns Comparison

The below table gives you an idea about the returns generated by the top mutual fund schemes’ regular as well as direct plans. I have segregated the best mutual fund schemes based on the fund category. (Read : ‘What are Large-cap / Mid-cap / Small-cap Mutual Fund Schemes?‘)

I have collated returns of regular plans and direct plans of some of the top performing mutual fund schemes for lump sum investment (last 3 year returns) as well as SIP investment (last 4 year returns).

Mutual Fund Direct Plans Vs Regular Plans returns comparison best direct mutual fund schemes 2017

  •  If you notice all the direct plans have out-performed their respective regular plans. The main reason for this out-performance is that the direct plans have lower expense ratios.
  • If you visit mutual fund research portals like valueresearchonline, you may find that they would have given different star ratings to a regular plan and a direct plan of the same mutual fund scheme. The reason can be due to the difference in the returns. Example : Birla Sunlife Tax Plan – Regular plan has been given Four Star rating, whereas its Direct plan has been awarded Five Star rating by valueresearchonline.
  • The difference in returns generated by a Regular plan & Direct plan is significant in case of the most of the schemes managed by Franklin India AMC. Example : In case of Franklin India Smaller companies fund, this difference is around 1.6%.
  • So, should you invest in a Direct plan to earn just 1% extra returns? The investment returns generated by a Direct mutual fund scheme can be say 0.75% to 1.5% higher than the returns offered by a Regular plan. But, a difference of this 1 percentage point can balloon into a huge gap due to compounding in the long term. Direct plans of mutual funds low cost higher returns pic

How to invest in Direct plans of Mutual Fund Schemes?

Below are the different options or ways by which you can invest in mutual fund direct plans.

  • You can invest in direct plans by visiting respective fund house websites and opt for a direct plan while selecting ‘mode of investment’.
  • You can also invest in a direct plan through MF Utility online platform. (For more details, kindly read : ‘How to invest in Direct Plans online through MF Utility?)
  • Off-late, quite a few new portals have been launched through which you can buy Direct Plans. Below are some of them;
    • Invezta.com
    • Orowealth.com
    • Bharosaclub.com
    • Mymoneysage.in
    • Jama.co.in
    • Unovest.co etc.,

Are Mutual Fund Direct Plans suitable for everyone?

Though Direct Mutual Fund plans give higher returns, they are meant for investors who know which funds to buy. If you are not comfortable or do not have the required expertise to identify right mutual funds as per your financial goals, it is better to take the services of a Mutual Fund agent. You may also consider taking the help of a fee-only Financial planner to buy direct plans.

In the race to get higher returns, it could be disastrous if you invest in a wrong Direct mutual fund scheme and make say 10% lower returns than its fund category. Instead  you can invest in a suitable Regular plan through an advisor who can guide you. A Direct Plan will work well if you have the required knowledge and infrastructure.

For the existing investments, be aware of the exit loads, tax implications and applicability of lock-in period (if any) before you switch from Regular plans to Direct mutual fund plans.

Do you prefer investing in Mutual Fund Direct plans to Regular plans? How do you invest in Direct plans? Kindly share your views and comments.

(Post published on : 22-March-2016) (Image courtesy of Stuart Miles at FreeDigitalPhotos.net) 

(References : Moneycontrol, Valueresearchonline, Morningstar, Freefincal & The Economic Times. Returns shown in the table are ‘Annualized Returns’ as on 02-Jan-2017)

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  • murty says:

    sir a common sense point here is it is told that cost per unit is higher in direct plans and so the invester gets less no.of units for his investment when compared to regular plan purchase. dividend is declared per unit . so eventhough the unit dividend for direct is declared higher than regular since no.units is less chance at times to get lower or same amount finally. and it may not be possible mathematically to give an optimum solution.

  • Aashish Opal says:

    I had two question.

    1. Instead of dealing with multiple AMCs, dont you think it makes sense to have all investments being routed through one distributor / one platform so that you can see value of your investments at one go.

    2. While NAVs for regular plan is lower than direct, it will be applicable to both buy and sell, right? In percentage terms of your gain or loss, it should not change whether it is direct or regular plan.

    Regards

  • Anand N Shastri says:

    Dear Sree,

    I had the same understanding that ‘Keeping everything else same, a lower expense ratio means lower costs and hence you can get better investment returns. Since everything else (portfolio, stock holdings etc) is exactly same in direct plans and regular plans, direct plans offer better returns than regular plans.’

    I have come across a strange example. In the case of DSP Blackrock balanced fund, while the NAV of the Direct option is higher as expected, Dividend Payout is much LOWER for the direct option as compared with the Regular option. The difference is substantial.

    Will you be good enough to explain how this can be? If I go invest in the direct option, I pay more per unit, and get much lesser returns!

  • GS Dhillon says:

    Dear Sree

    Nice article as usual

    Is there any AMC or independant MF advisers on line , who can suggest/ advise BEST Direct MF,based on their analysis. on nominal payment .

    Thanks
    G S Dhillon

  • NIRMAL GOEL says:

    I have invested in regular plans through HDFC ISA and demat. But there is no facility of advice etc on selection of mutual fundd. I ahave always done on my own. I think there is no such advantage of regular plan as being stated on websites.

  • Pranali says:

    Thanks for this wonderful article! Can you kindly summarize this article with comparison of advantages and disadvantages of Direct vs Regular plan?

    In simple terms can I say that in comparison to regular plan, advantage of direct plan is lower expenses/fees and disadvantage is tracking of different direct plans @ one place?

  • Nikhil says:

    Say in 2016 you recommended long term equity funds A,B,C
    in 2017 you recommend long term equity funds A,D,E.

    Then in this scenario what should one do with funds B and C.

  • jigneshp says:

    Dear Sir,
    I have started my ELSS SIP as per below mentioned details. Pls suggest is it good for future of next 10 years from Aprl-2016. Should i continue or change?

    yearly 60,000 SIP all in growth direct plan.
    TATA indian tax growth Rs.1000
    ICICI prudential long term Rs.1000
    Axislong term Rs.1000
    Birlasun life Tax plan Rs.1000
    Franklin Taxshield Rs1000

    Waiting for your valuable reply…

  • Anand Bajaj says:

    Thanks for putting direct and regular in perspective. I started off my investment journey with regular and paying account fee on top of that. Later, by reading your articles i got to know about direct plans and started researching about it.

    Now, i have all my SIPs are in direct schemes bought directly on respective fund site. This article justifies my decision.

    Only hassle i have it to keep track of each investment separately and navigate different portals.

    But thanks to monthly NSDL CAS statement, i get consolidate view of my investment in one shot.

    Way to go ….

  • Saikat Mazumder says:

    Dear Manja & Sreekanth, Thanks for the valuable feedback. My investment Horizon is 7-10 years, may be be more. It will be better to continue investing as it was going on. My Goal is to get Maximum return & Build up a corpus for retirement.

    Do You have any comments / suggestion on Motinal Movi Plan. Is it one of the good funds.

    • Manja says:

      Hi Saikat,
      Just to clear out any confusion. This blog is owned by Sreekanth. I am just one of the users who is following the posts closely and pitch in whenever I think I can provide suggestion. I am NO expert and provide my suggestion based on the knowledge gained by reading.

      Regarding your query, I do not follow Motilal Oswal, hence cannot suggest. However, if you investment horizon in 7 – 10 years, do invest in Mid / Small cap + Large Cap to build up for wealth creation. However, if you are investing for first time, please make sure you have a proper base created like, Term Insurance, Health Insurance, etc. first before venturing into equities

      Manja

  • Saikat Mazumder says:

    Hi Sreekanth,

    I have invested with Funds India Since Oct’15, in the liquid funds for Value added transfer to Franklin Prima , Franklin India Blue Chip, HDFC Top 200, HDFC Equity & Reliance growth plan. The Nominal value of transfer for each is 10,000 per month. Other than this have additionally done some lumpsum invested to the same funds during the dips.
    on 7th Sept’16 total investment is 18.6 lakhs (4.2 Lakhs in Liquid funds & remaining in equity funds) & the unrealised gain is 3.28 Lakhs (17.6%).

    Is it prudent to switch the 80% of the equity funds to the liquid funds & wait for the dips to do lumpsump again.

    As market is on the bull run

    • Manja says:

      Hi Saikat,
      The answer depends primarily on what is your goal and other fators like exit load, taxes, future redemption value, etc .
      1. Have you achieved average %age far greater than required to achieve your goal? If yes, then choose an amount to transfer it to Liquid fund. This you can reuse to top up when the market go down again. Don’t just choose 80%.
      2. Point 1 should be very CAREFULLY decided since you will have to pay 15% taxes on the capital gains and whopping 1% of the total value being switched if done below 1 year! This is significant and hence should be carefully chosen. As I can see since you started on Oct 2015, none of the funds have achieved 1 year mark.
      3. If your goals are long term, the suggestion will be NOT to switch, but you may decide not invest in Equities for some time and choose a Liquid / Ultra short term fund to build up Oppurtunity fund. When the market crashes, this opportunity fund will help you earn top earnings.

      So decided based on the above points. This is just my suggestion. Sreekanth may have better view.

    • Dear Saikat,
      As rightly pointed out by dear Manja, it all depends on your goals. Let’s not time the markets.
      If your goal target year is say in next two years, then you can switch to liquid or safer bets.

  • Savin says:

    Hi Sreekanth,

    I started below SIPs a year ago thru KARVY.

    1) Please suggest its better to switch these REGULAR FUNDs to respective DIRECT plans. (I believe we have free switch option after 1 year).

    TSGP-Axis Long Term Equity Fund – Growth
    Franklin India Smaller Companies Fund – GROWTH
    RWGP-RELIANCE RETIREMENT FUND – WEALTH CREATION SCHEME – GROWTH PLAN
    SBI Magnum MidCap Fund – Regular Plan – Growth

    2) Also please let me know your opinion about all these 4 funds. Is it better to continue?

    Regards,
    Savin

  • Jay says:

    Well put together. With a bit of research, direct plan is the way to go.

  • CC says:

    Hi Sreekant,

    I need to know how does compounding works in mutual fund. I understood the rupee cost average methodology which comes in picture when we use SIP method But compounding in mutual fund is something I couldn’t understand. Since the returns in mutual fund are not fixed how is the money compounded? Like in FD we know the interest rate would be 7.1% and at the end of the year the interest would be added to principal amount in the next year that is the way the money is compounded. Is it that at the year end if a said fund has a return of say 10%, they would buy extra units with that returns and add it to our portfolio? Your reply would be much appreciated.
    Thanks in advance

  • vishal says:

    Hi Sreekanth!,
    Silly question may be?
    I visited all the web sites that you mentioned above for direct M.Fs. They all ask for C.A.N

    Is C.A.N is same for every platform ? E.g I am in process to open an account with MFutility. Will CAN from MFutility be same for all other mentioned platforms ?

  • J. James says:

    On if anyone needs an agent or advisor for mutual funds i would say exercise caution.Agents and distributors earn extra commission by pushing products which have lower value or are hard to sell. Also have your doubts cleared on every aspect of the fund. I would if you dont know what Large/small cap mean, invest some time in gaining knowledge rather than burning your capital.Also monitor progress from time to time.

    My father’s advisor pushed him into purchasing a couple of ulip’s and some infrastructure based mutual funds (7 yr. return 3.90%) so you can see what i am talking about.

    Happy investing!.

  • Arul says:

    Hi sreekanth !
    Axis long term equity direct plan launched 2013 as compared to regular 2008 !
    Is it safe to invest direct which was
    Launched just 3 years ago?
    What are the drawbacks of axis long term equity direct plan?

    • Dear Arul..Kindly note that the Portfolios of both the funds are same 🙂
      Read: What are Direct plans of Mutual Fund Scheme?

    • siva says:

      Dear srikanth,
      I have read some of your blogs regards mutual funds. It is very impressive.
      I have one doubt. if you invest in direct plan NAV value is more than regular plan, but if you see number of units , a buyer can purchase is more in regular plan than in direct plan.

      for instance: a investor invests 2000 rs in birla frontline equity fund. nav regular 165 and nav direct 170.
      no of nav units for regular is 12.122 and direct is 11.76 units. next month if nav for direct 176 and for regular 170.
      Then if you calculate overall no of unitwise. the value looks same.
      can you please give advice on this is more useful.
      regards
      siva.p

      • Dear siva,
        You need to calculate the % rate of growth in NAV.
        Though you buy it at higher NAV than the regular plan NAV, the rate of appreciation will be slightly higher than the regular plan’s.
        Direct Plan returns : 3.52%
        Regular plan returns in this case : 3.03%

  • Manja says:

    Hi,
    I have made following portfolio based on my high risk profile. Partial withdrawal from mid cap will be done within 2-3 years and invested in Large Cap as my risk profile may change. Liquid / ultra short funds are for lumpsum deployments to mid-cap & large cap when markets are down. Let me know if this is a right strategy

    Diversified Equity 4.60%
    Large Cap 21.10%
    Liquid 33.70%
    Small & Mid Cap 29.70%
    Ultra Short Term Debt 10.90%

    I know you will ask whether I have emergency fund. Yes I have emergency fund to last 18 months, medical insurance covering 5 lacs each member and term insurance until next 20 years. I am 38 years.

    Kindly advise about the portfolio

    • Dear Manja..May I know what do you mean by ‘risk profile may change’. Kindly share your details about your Financial Goals.

      • Manja says:

        I meant that as I grow older, I may become more conservative and shift my investments from Small/ Mid Cap to Large Cap or to Debt Funds.
        Financial Goal is save for retirement at age 50. From which time I will start needing the monthly / quarterly incomes.

        Hence, the questions are:
        1. Is my strategy correct?
        2. Are these the right distribution for my risk profile
        3. What changes to distribution should I make in next 5 years. I would want the last 2 – 3 years (leading to age 50) to be relative safe and hence will dilute about 85% all my investment into majorily FD during that time. Hence, I have a horizon of 10 years from now.

        • Dear Manja,
          1 – Strategy of moving to safer investment avenues as you reach your Goal target year is a right strategy.
          2 – If you have goals which are >5 years away, you may reduce allocation to Liquid funds (as you also have sufficient Emergency fund available with you).
          3 – Next 5 years, kindly just stay invested and do monitor the Portfolio performance.

          • Manja says:

            Thanks Sreekanth. Yes, I will switch my Liquid funds proportionately to Large Cap and Mid-cap. I missed to invest in low market during Feb – March timeframe and looking for Breexit outcome to invest more as I presume market will be down.

            Yes, I believe in long term investing. Although I have some experience in markets, your detailed analysis on various topics are eye opener / refresher sessions. This enables me to not go overboard or neglect the funds. Wonderful job!

  • manoj patil says:

    Hi Shreekanth,

    Good Afternoon.

    I am regularly following your blogs and they are very useful and learnt many things. Thank you very much for you valuable time and helping the society.

    I have taken the following mutual funds.Please go through my mutual fund portfolio and kindly suggest shall i retain them or shall i redeem and invest in other schemes/funds. My investment horizon is next 8 – 10 years. (All are regular plans only)

    1) ICICI Mutual FUND

    a) Dynamic plan (SIP was over in 2011 April)
    b) ELSS (Long term equity fund tax saver – invested in August 2010)
    c) Value Discovery fund – SIP is going on
    d) Export and other services fund – SIP is going on

    2) Can robeco mutual fund
    a) ELSS (SIP ended in 2012 December)
    b) Emerging equities fund – SIP is going on

    3) Axis mutual fund
    a) ELSS SIP is going on

    4) DSP blackrock mutual fund
    a) Microcap fund – (SIP ended in 2011)

    5) L and T mutual fund
    a) ELSS (SIP was ended in 2011)

    6) HDFC mutual fund
    a) Mid cap fund (SIP was ended in 2012)
    b) ELSS (SIP was ended in 2012)

    7) Reliance mutual fund
    a) Equity opportunity fund (SIP ended in 2011)

    8) Tata mutual fund
    a)Mid cap fund (SIP is going on)

    9) Franklin templeton mutual fund
    a) ELSS (SIP is going on)

    Thanks
    Manoj

  • sankar says:

    Hi,

    I am confused on which of the below funds to invest can you please guide me?

    Mid cap
    Franklin india smaller compaines fund/DSP BR micro cap fund/hdfc mid cap opp.fund/hdfc balanced fund

    Large cap

    Religare invesco dynamic equity fund/SBI blue chip fund/SBI magnum equity fund

    Please advice on one mid cap and large cap fund

    Regards
    Sankar

    • Dear Sankar..May I know your investment horizon & investment objective(s).

      • sankar says:

        Hi,

        Investment horizon will be long term 4-5 years. There is no objective as such, need to invest for my daughters education who is 1.5yrs old now and for other stuffs. Instead of investing in FD/RD, i would like to invest in any of these funds. Please guide.

        • Dear sankar,
          If your investment horizon is around 5 years, you can start investing in a balanced fund like HDFC Balanced fund and multi cap fund like Franklin Prima plus.

  • Rahul says:

    Hi Sir, Few questions on direct plans.

    1) Without the help of financial adviser, can one start investing in a direct plan?

    2) I read somewhere that one needs to be well informed about markets, equity and the companies if he wants to invest in direct plan. Is it correct?

    3) Regular plan and Direct plan of one product (For e.g., ICICI Pru Value discovery fund) invest in same companies. Only advantage is the returns are more in direct plan (since no commission). Is it correct?

    4) Does the investor choose which companies to invest in a direct plan? Suppose if i choose a fund (say SBI Bluechip fund), should I also specify what all companies constitute this particular fund? In any AMC, is there a fund manager for direct plan funds?

    Please reply.

    • Dear Rahul,
      1 – Help is different and actually investing through the advisor is different. An advisor who is registered with SEBI can give you a financial plan on fee basis and can HELP you to choose a DIRECT PLAN.
      2 – Yes.
      3 – No, you can’t decide where the fund has to invest. If you have such expertise, you may invest in Direct Equity (shares).

      • Rahul says:

        OK, Sreekanth. Thanks for the reply. As a beginner, I am thinking to invest in mutual funds with my small goals. After reading your blog, I get more clarity. I have been seeing various sites. Most of them do not give a clear picture or accurate answers to what people really need. Your efforts are great.

  • senthil says:

    Hi sir…planning to invest in ELSS
    4 funds selected
    Axis long term equity
    BIRLA TR 96
    RELIANCE TAX SAVER
    FRANKLIN TAX SHIELD

    all in growth option at 3k sip planning to keep for next 10 years …
    Is my options are good …please help???

  • Shaik Zaheer Basha says:

    Hello Srikant …….This Dr. Zaheer , Your blogs are absolutely very useful for people like me who are very much new to Mutual Funds…..Thank you for this article …..Cleared my Doubt Regarding Direct and Regular Plans……..
    I have a small question hope you can provide a solution for it to ……….

    As i want to Invest only in Mutual Funds which Follow Sharian Laws , Right Now there are only 2 Mutual Funds which Follow those in India. Mentioned Below

    1)Tata Ethical Fund , Regular plan and Direct plan)
    2)Tarus Mutual Fund (Regular plan and Direct Plan)

    As you say that Direct Plans are to the people who knew to select the right mutual fund, Though am not a expert in selecting a right Mutual fund ,i dont have any option (select 2 or 1 in the above mention funds) …….

    Question) Now Should i hire a Mutual Fund Agent to select a Regular plan or i myself Directly buy the Direct plan …..Because i already selected my Mutual Fund as you mentioned in the above article ……Waiting for your Answer

  • ANP says:

    Hi Sreekanth,

    Thanks for your insightful articles. Very helpful.

    I invested about Rs.36,000/- in Axis Long Term Equity Fund (G) – ELSS in FY 2015-16 through my demat account. However, from FY 2016-17, I’m planning to invest directly through Axis MF’s website in Axis Long Term Equity Fund – Direct (G) – ELSS. Please let me know if I can start investing in the same folio or I have to open a new folio to invest in ‘Direct’ scheme of the same fund.

    Thanks in advance.

  • ThamilSelvi says:

    Hi Sreekanth, First let me appreciate your job. I am a regular reader of your articles and after going through most of them, I’ve learned so many things. I would like to listen your valube feedback regarding my current situation which goes as folows:

    1. I am 50 years old NRI.
    I started two HDFC life super income plans in 2014 and payed two premiums of 1.5 lakhs each and i should pay a total of 8 years. The sum assured on maturity is 8.6 lakhs.

    2. another LIC MONEY BACK POLICY of 3.3 lakhs (just paid one premium until now) for 15 years with a sum assured of 36 lakhs. As a survival benefit I will receive 7 lakhs at the end of every 5 th year for three times and at the end of
    20 th year I will receive 43 lakhs.
    with out sufficient knowledge I made all these commitments. Thank God I started learning all your articles.
    I dont know anything about mutual funds. still I am interested in investing 2 lakhs every year in emergency fund, short term for 3 years and long term for 5 to 7 years. I am having medical insurance.
    Considering my age as well as a NRI how should be my invetment portfolio. I dont know the funds suitable for NRI.
    For my age is their any term insurance? I need your opinion to change all my past investments.
    Thank You.

  • bala says:

    Sir,
    I have invested about rs30000 in SBI blue chip regular plan and also now investing in the same through sip about 500 rs a month.I have not invested in the direct plan .is it right?I am planning to stay for a minimum of 15 years for a long term objective.kindly advise me regarding this.

  • Ankur Arora says:

    Hi SREEKANTH

    I am running my portfolio with FundsIndia and invested in 8 different funds via SIPs (covering LARGE, MID &SMALL CAP, HYBRID, BALANCED, ELSS and DEBT funds). If i go direct through MFutility will i get same ease of operation ? Also will i be able to shift to Direct Plans of same funds i am having with FundsIndia with same portfolio no.?My investment horizon 10+ years.

    Also Pls tell about portals you mention through which we can invest in direct plans like Invezta, ORO Wealth. Are therse portals trustworthy and safe .?Would you recommend it or not.

    I want user friendly Investment Management.

    and i am a DIY investor

    Thanks
    Ankur

    • Dear Ankur,
      A platform like fundsindia will offer or has to offer value added features which may or may not be available with MFU.
      Personally, I too invest some of my MF investments through Fundsindia.com, and satisfied with their platform.
      I went through invezta portal, looks very promising. You may check it out (this is a suggestion and not a recommendation).
      Kindly note that when you are investing through any platform, you are not investing in their products/services, you are only investing in Funds, your money is with the Fund houses.

  • Mahesh Kumar says:

    Dear Sir
    I Started Investing in MF from year 2009 in Regular Plans without any brokerages involved directly in IDFC Premier Equity fund,reliance Regular Savings Fund and in 2010 ICICI Focused Blue Chip all SIPs are in Growth Option and subsequently from Jan 2013 all old SIPs were stopped and new SIP in Direct Plan was Started automatically.
    The Old SIP Units are still not redeemed and i have kept them as it is and intend to keep it for longer time 15-20 Years and i am still continuing with Direct Plans for above MF Plans.Please Clarify the follwing
    What should i do with Old Regular Units should i redeem after 15-20 Years or start investing in Direct Plans with STW right now in phased manner ?
    Please suggest.
    Regards
    Mahesh

  • B B RATH says:

    Dear Sreekanth

    Please take little extra pains to explain the real difference between the returns between direct and regular schemes in view of the undernoted speciality:

    When we are buying units under direct plans, we are getting lesser number of units than the regular plan. Whether this factor has been considered while calculating this difference in return.

    I find the return is definitely better at the time of redemption . But if we consider the lesser number of units allocated, how much is the real difference? kindly explain

    Another confusion is regarding returns percentage. Are these simple returns, annualised returns or something else. If you can illustrate citing mf returns vs bank fd returns at the equal rate, it wouldbe helpful.

    Regards
    B B Rath

    • Dear Mr Rath,
      The above ones are annualized returns.
      The real difference is the extra returns that you are getting by investing in Direct plans. It is the % of returns that matters.

      “NAV of a fund is irrelevant, because it represents the market value of the fund’s investments and not the market price.”

      For example, you have 2 choices, 1,000 units of Fund A with a NAV of Rs.10 and 100 units of Fund B with a NAV of Rs. 100. You decide to buy 1,000 units of Fund A. After a year, as both funds have the same portfolio they grow equally at around 20%. The NAV of Fund A would then be Rs. 12 and NAV of Fund B would be Rs.120. Your investment value would then increase to Rs. 12,000, and the return would be the same irrespective of which fund you choose.

      If you take the same example for regular Vs direct then the returns are even better than a regular plan of a mutual fund scheme.

  • Subrat says:

    Hi Sreekanth,

    I have demat account with HDFC securities so while choosing the MF i just have to choose ‘direct’ plan instead of ‘regular’ or i have to MFUtility platform

  • prasanna says:

    1)direct plan sebi ria fees.
    2)regular plan IFA fees.
    which is the most cost effective???.

    • Dear prasanna..RIA fees can vary right?? as you have to pay a certain fee to a Financial planner or Registered Investment Advisor and get your financial plan created.

      • prasanna says:

        By your above example ..distributor’s commission is approximately 1000 p.a and it ‘ii be increasing in future. whereas a FP charges more than5000 p.a to monitor the portfolios (excluding writing financial plan fees).so Is it better to go with a good distributor.???

        • Dear prasanna..Its purely your personal choice. My suggestion to you would be to associate with a Fee only Financial planner who can help you create an unbiased Financial plan. There are ‘n’ number of transaction execution platforms (some are even available at free of charges to the client) which you can make use to execute your Financial plan.

  • M RAMESH BABU says:

    I am a retired Bank employee, I have to invest Rs.1,40,000/- in 80C before month end. Which mutual fund you recommend and why ? Thanks in advance.

  • narayana reddy says:

    Regarding First point yeah I select SIP Monthly plan as minimum amount 500 Rs [minimm capability i think i have ]and if I have extra cash in my hand I want to invest that extra amount also same in the same MF.

    Can you elaborate what u mean exactly “Features likes SIP pause, additional SIP amount based on certain triggers etc., can be dependent on the type of platform you use.”

    especially additional SIP amount based on certain triggers that I need to understand because sometimes in a month i have some extra cash I want to invest the same in the SIP monthly plan .

    Thank you for immediate reply .

  • Anup Kulkarni says:

    Dear Sree,

    Yes, I will go for Direct Plan.

    After all its my money and I will have to manage it through out my lifetime.
    (But with deep understanding and if required taking fee-only FP advice for starting years)

    Very valuable analysis you have done here (and also all of yours earlier articles) .

    One suggestion from my side that that I strongly feel while reading your article that,

    * Try to specify (attach) “DATE” with article.

    Thank you,
    Anup

  • syed says:

    How about Reliance AMC funds

  • shrikant says:

    Sreeekanth,

    My experience in direct plan is of mixed nature. I was investing BSL top 100 regular dividend as
    I am retd person and need some sort of regular & tax free income. From Jan-2013 I switched to direct plan
    dividend under the same scheme. From Jan -2013 I am observing regular plan is declaring regular dividend
    but no dividend declared under direct plan.
    At the same time I am having folio’s in HDFC and Franklin where this question does not arise. In both the
    fund houses -in which schemes I am investing the dividend is declared under the both plans Regular/direct.
    So how we can advocate any plan is better or suitable for investor? These are the factual examples. You can
    check.
    Regards,
    Shrikant

    • Dear shrikant,
      Your point is correct w.r.t BSL Top 100 fund Dividend option. But this may not be the case with other fund houses/schemes.
      But the above plans are ‘Growth’ only ones.
      It is prudent to opt for ‘Growth’ option if one’s investment objective is long-term wealth accumulation. In all the above plans, it’s very clear that Direct plans do generate returns which are better than the Regular ones.

  • Zeenat says:

    I like this side

  • Arthur says:

    Is there a Service Tax which investors have to pay on Direct Plan MFs and the same is not there on regular MFs ?

    • Dear Arthur..I believe that you are referring to ‘Service tax’ levied on Distributors’ Commissions. If so, ST is not applicable in case of the Direct plans as no commission is involved here.

  • narayana reddy says:

    Hi Sreekanth Reddy,
    I started following your blog posts on Financial related matters quite recently when I was looking for some ELSS MF’s to invest I come across your blog since then I started following your articles which are very informative.

    I have one doubt regarding MF SIP plan
    Let suppose I want to start SIP plan coming this may and in the first month of may I invest around 2000 Rs and in the coming month if I invest only rs 500 or 1000 Rs will it be okay and at the time of selecting minimum amount to invest I will select only 500 Rs as my option and whenever I save some extra bucks that I want to invest in this ELSS plan.

    One more doubt I have is as I invest in ELSS through SIP and they get matured also on a monthly basis right. At the time of maturity of SIP’s at that time like every month, I have to collect my money on a monthly basis or I can accumulate all those matured Monthly SIP’s all at a time to withdraw money. My intention is not withdraw anyway once expires, I want to reinvest them but I wanted to know .

    I am thinking of investing in the Following ELSS MF on a monthly basis through SIP DIRECT PLAN -GROWTH Option

    i) Axis Long Term Equity Fund – Direct Plan with Growth Option on Monthly Basis For 3 years Minimum amount to invest is 500 or 1000 .

    Can you suggest me one more Short term investment I can choose where I want to invest for only one year on a monthly basis with small amounts as less as 500 to 1000 Rs I can invest in this for a year with high returns

    Thank you for your Effort for answering my doubts.

    • Dear narayana,
      1 – Yes you can start with a minimum SIP amount of say Rs 500 and can also make additional investments under the same folio. Features likes SIP pause, additional SIP amount based on certain triggers etc., can be dependent on the type of platform you use.
      2 – The fund units (ELSS) allotted under each SIP are locked for 3 years, you may continue with the investments as long as you can (depending on your investment objective).
      3 – Axis LTE is a good fund. Kindly read : Best ELSS funds.
      4 – If your investment horizon is <1 year, its not reasonable to expect HIGH Returns.
      Suggest you to go through these articles:
      List of best investment options.
      Types of Debt Funds.
      Best Debt funds.

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