Direct Plans and Regular Plans
Direct Plans in Mutual Funds are the plans where investors buy the mutual fund directly, without the intervention of a distributor, advisor or broker. While in a regular fund, the investor will be investing through an agent which can be an individual or an online broker. In a regular plan, the mutual fund company pays commission to the intermediary. This expense is recovered from the plan through expense ratio. As a result, regular plans have a higher expense ratio.
Features of Direct Plans
- Investors can invest directly without any intermediary, broker or distributor.
- No hidden expenses. There would be no trail fees or distribution fees.
- No transaction charges for both lump sum or SIP investments.
- Separate NAV. For a direct scheme it would denote ‘Direct’ in its description.
Are Direct plans better than Regular plans?
Direct and Regular plans are just two different options of the same mutual fund scheme. It is managed by the same fund manager and investments for both is in the same stocks and bonds. The major difference between the two is that for regular funds the AMC pays commission to the broker as transaction fees or distribution expense, while for direct funds no such commission is charged. This is because when you invest through a direct plan, there is no intermediary and all the costs associated with it are eliminated. For this very reason, direct plans have less expense ratio.
NAV of the direct plan is higher compared to a regular plan. Does that mean choosing a direct plan is beneficial for investors? NAV of the shouldn’t be the only factor that you should consider while investing. Various other factors like whether you have enough knowledge to pick the right fund for you, and have the right knowledge to maintain your portfolio. If not, its best to go with an advisor who does all this for you at a very minimum cost. Despite the expenses being higher in regular funds, the overall portfolio returns would be higher in regular funds due to the advisor’s continuous monitoring and rebalancing of portfolio to generate higher returns.
Who should invest in direct plans of mutual fund schemes?
Investors who wish to directly deal with individual fund houses rather than intermediaries should consider investing through direct plans. Above all, investors with the capacity and knowledge to study mutual funds by doing their own research can invest in direct funds. The entire process of application, documentation, tracking, portfolio reviewing, compliance issues etc. should be taken care of by the investor. Therefore, investors who want to increase returns by reducing the expense ratio and have good knowledge of mutual funds can consider investing in direct funds.
What are you getting when you invest through a regular plan?
- Investment recommendation: Selecting the best mutual fund is the biggest task. A choice made between a good vs poor fund can lead to a difference of 4-5% return over time.
- Periodic Review or Rebalancing: Periodic review and rebalancing of the portfolio will help in improving the performance.
- Additional Services: Facilitating the investment, tracking portfolio, any changes to the account, etc. might seem simple tasks, but require time and effort. Such services are provided by the intermediaries.
Therefore, as an investor, if you lack the knowledge to pick and track your own funds. Investing through a trusted advisor is the best option available. Upwardly is one such advisor that helps its investors to earn higher returns through its Dynamic Asset Allocation investing model and periodic rebalancing.
Investing through Upwardly
Upwardly does not distribute direct funds through its platform. Upwardly has tailored Nobel Prize-winning portfolio strategies, especially for the Indian Market. We create balanced and personalised portfolios for investors based on their Investment Horizon and Risk Profiles while accounting for the prevailing Market Conditions like Stock Markets performance (Price to Earnings, Price to Book, Dividend Yield), Interest Rates, GDP growth Rates and other important macroeconomic factors.
Upwardly uses a proprietary investing model which is based on Dynamic Asset Allocation that has given substantially higher returns than the Markets over a period of two decades. We optimise the investor portfolio to offer a maximum possible expected return for a given level of risk through careful selection of asset classes and mutual funds using our proprietary ranking frameworks.
We constantly monitor investors portfolio and recommend periodic rebalancing to maximise returns while taking into account prevailing market conditions, tax implications, switching and exit costs to meet their goals and aspirations. Also, we offer a flexible and convenient platform to track/switch/Redeem/Top Up investments at a click of a button from the comfort of investors home/office.
Above all, we have the best interests of our client in our heart, and we believe that nobody does it better than us.
Read the article to understand the commission structure Does Upwardly Charge its Customers a Commission?