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ToggleMutual funds come in two versions direct and regular plans. In a direct plan, you purchase the mutual fund directly from the fund house or asset management company (AMC). Hence there is no intermediary involved.
In the case of a regular plan, a broker or distributor gets involved, and you purchase your mutual fund from them. The AMC pays a small fee to these intermediaries, which is recovered by charging a higher expense ratio from the investor. The expense ratio is the fee you pay the fund house to manage your investments.
Both have their own set of advantages and limitations. Read to find out the differences between direct and regular mutual funds and which one is better.
Direct mutual funds are a type of mutual funds offered directly by the fund house, without any involvement of a third party, such as brokers and distributors. Since there are no intermediaries involved, there are additional commissions or brokerage. Hence, the expense ratio of this plan is lower compared to a regular plan.
You can purchase a direct plan online or offline. Along with AMC’s several online platforms, such as Jupiter Money and Groww, are offering direct mutual funds to investors.
The primary advantage of a direct plan in a mutual fund is that the expenses are low compared to a regular plan. Hence the returns are slightly higher in the long term.
However, with direct plans, you must manage your mutual fund portfolio. You are responsible for reviewing, monitoring, and rebalancing your portfolio regularly. Moreover, you must spend a lot of time on research to review the performance of your mutual funds.
The fund house offers regular plans in mutual funds through aggregators such as distributors, advisors, and brokers. To invest in regular funds, you need not go to the AMC. Instead, you can approach these intermediaries who will help you invest in the mutual funds that best suit you.
They will assess your goals, investment horizon, and risk tolerance level and suggest funds. The intermediaries also offer regular portfolio monitoring and rebalancing. Investing in regular plans is very convenient as the intermediaries will take care of your investments for you.
However, they charge a small fee, increasing the total expense of investing. Hence the returns of regular plans are slightly lower than direct plans.
Following are the key differences between the direct and regular plans.
Criteria | Direct Plan | Regular Plan |
Intermediary | No intermediaries are present between AMC and the investor | Brokers, distributors, and advisors sell mutual funds on behalf of the AMC |
Commission | No intermediaries, hence no commission | The commission is paid to intermediaries by the AMC |
Expense ratio | No commission, so the expense ratio is low | High expense ratio as a commission is paid |
Returns | Slightly higher due to low expense ratio | Low returns due to a high expense ratio |
Capital Appreciation | Capital appreciation is high as the expenses are low | Capital appreciation is affected due to the high expense ratio |
Who can invest | Experienced investors with the market knowledge | New investors and investors who lack time to review their portfolios regularly |
Direct and regular plans are two different options of the same mutual funds. Both plans have the same fund manager, portfolio, and asset allocation. However, the direct plan has a low expense ratio and high NAV (net asset value) than the regular plan.
It is difficult to tell which one is better than the other as both direct and regular plans have their own pros and cons. The direct plan gives slightly higher returns than the regular plan due to lower expenses. However, if you invest in this plan, you must manage your own investments. From research to investing, monitoring, and rebalancing, you must do everything independently. To invest in a direct plan, you must have the market knowledge and the time to regularly monitor your portfolio. Hence direct plans best suit investors who can manage their own investments.
On the other hand, you don’t need any market knowledge for regular plans. Moreover, the intermediaries will do the research and portfolio review for you. They also ensure that your paperwork, bank mandate, and KYC is done either through an online or offline process. However, the returns for this plan are slightly lower as the expense ratio is high. Regular plans best suit investors who are just starting their investment journey or do not have time to manage their portfolios.
There is a misconception that if you are investing through a fund house, you are investing in the direct plan. An AMC offers both direct and regular plans. It’s not difficult to identify which plan you are investing in. The following will help you identify whether the plan is direct or regular.
When you switch between regular and direct plans, for taxation purposes, it will be considered as a redemption from an existing plan (regular or direct) and a fresh investment into a new plan (direct or regular).
So this means that when you switch from regular to direct, the fund will first redeem your investment from the regular plan and reinvest it into the direct plan. Since you redeem the units, any capital gains will be subject to taxation.
The question now arises: How will an investor know the difference in returns between direct and regular funds? A typical mutual fund calculator provides you with the future value and returns (CAGR) on your investment in the regular and direct mutual fund for comparison.
Jupiter Money is a digital banking application that allows customers to bank and invests on the same app. It helps customers to manage their savings accounts, make investments, and provide real-time spending insights. It also allows customers to track assets across bank accounts and manage transactions. You can buy Jupiter Money’s zero charges and zero-commission direct mutual funds on Jupiter.
Jupiter Money’s investment marketplace lets you quickly research and select the ideal investment option from various options, including mutual funds. They also provide you with services such as no-penalty SIPs and same-day NAV.
While making investments, you typically like to know how your investment will grow over the time horizon you plan to stay invested. Jupiter Money provides you with multiple calculators for different purposes. The mutual fund calculator can help you understand the expected future value and CAGR of your investments in Jupiter Money’s mutual funds.
The mutual fund calculator also shows you the difference between the investments’ returns in both direct and regular plans. This can be calculated by inputting the investment amount, investment method – lumpsum or SIP -, investment period, required rate of return, etc., for both versions.
You can invest in any of the plans. However, it is important to weigh the pros and cons of each of the plans against each other before choosing one. If you can manage your investment, and have the time and knowledge to do market research, then direct plans are better for you. If you do not have the time and knowledge to do market research and manage your portfolio, then the regular plan is better for you.
Priyanka Rao is a content strategist for Jupiter.Money, and specializes in writing on topics related to finance, banking, budgeting, salary & wages, and other financial matters. She has a passion for creating engaging content that resonates with audiences across various digital platforms. In her free time, Priyanka enjoys traveling and reading, which allows her to gain new perspectives and inspiration for her work. With a keen eye for detail and a creative mindset, Priyanka is committed to creating content that connects well with her readers, enhancing their digital experiences.
View all postsVivek Agarwal is a dynamic leader with deep expertise in investment platforms and wealth management. At Jupiter Money, he spearheaded the Investments vertical, building in-house solutions for direct mutual funds, digital gold, and fixed deposits, scaling the platform to over 200,000 customers. He was an early adopter of SEBI’s Execution-Only Platform (Category 1) and managed key operational, compliance, and customer service functions. Previously, Vivek co-founded Upwardly, a robo-advisory wealth management platform offering tailored investment and insurance solutions. As Chief Investment Officer, he pioneered dynamic asset allocation, goal-based investments, and motif-based portfolios. After Upwardly's merger with Scripbox, he led the integration of independent financial advisors into Scripbox, transitioning assets under management and customer relationships seamlessly. His strategic leadership extended to setting up corporate treasury services for startups and MSMEs, and establishing verticals in insurance and bond sales, including Sovereign Gold Bonds. Vivek’s diverse experience and strategic vision continue to shape the financial services landscape in India.
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