With the advent of January 2013, several AMC has come up with Direct Plans in Mutual Funds as per the SEBI Guidelines. Direct Plans in Mutual Funds offers several leverage benefits to investors in following ways:

  • With Direct Plan investors can directly invest in Mutual Funds schemes i.e. without involving any intermediary in between the transaction.
  • Also, Direct Plans offers low expense ratio as compared to Regular Plans, where the later gives both upfront and trail commission to the Intermediary, thus costs to the investor.
  • Further, with Direct Plans investors can leverage more returns on their investments in the long-term thus, enjoy more compounding benefits.
  • While Regular Plans charges 50-75 bps extra for the transaction through distributors, Direct Plans offers investor to get rid of such charges.
  • As investments in mutual funds are subject to market risk, thus it led them to analyze & invest in any of the MF Scheme (Increases Transparency) which suits to their need which was not possible in Distributor’s led Regular Plans.
  • In addition, investment made through MF Distributors is limited due to their Empanelment with Specific Fund Houses which led Direct plan to select schemes of their choice and risk.
  • As, there is a little percentage difference in regular and direct plans but in the long-term it hugely affects investor’s return. Let’s take an example:
    • Chandu has invested Rs. 30 Lac as Lump-Sum directly XYZ MF Equity Scheme - Direct Plan (Expense Ratio -1 %), whereas Mr. Sharma has invested same amount through his MF Distributor in the same scheme but in Regular Plan (Expense Ratio -2.5%).

After 10 years, the Mr. Chandu gets Rs. 1.68 Crore i.e. 18.80% annualized return whereas Mr. Sharma gets Rs. 1.45 Crore only i.e. 17.00% annualized return for making investment in Regular Plans, thus paying Rs. 23.00 Lacs as commission to the distributor.

Besides, low expense ratio and higher returns in direct plans, investors, who lives outside the country (NRIs/other Residents) needs to contact every time to their distributor to invest which increases either the cost due to the time & availability issues of either parties or the accessibility of the distributor. Thus, with the beginning of direct plans, today investor from anywhere in the world with good internet connection can invest directly in MF scheme of their choice with just a click of a button.

Further, it also enables investors to literate themselves on the advantages and disadvantages of the MF Scheme which was not possible with distributors led Regular Plans.

Thus, investing in direct plans benefits investor to not only save money in the long-run but also allows them to invest directly in the MF scheme of their choice within their reach and knowledge.

Investments in Mutual Funds are subject to Market Risk. Please read all scheme related documents carefully or consult with the SEBI Registered Investment Advisor like Kedia Capital Services.

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