Mutual funds have gained immense popularity among investors as a lucrative investment option. With their diversified portfolio and professional management, mutual funds have the potential to offer attractive returns. However, one aspect of mutual fund investments that often confuses investors is the difference between a regular plan and a direct plan.
In this blog, we will discuss the concept of a direct plan in mutual funds, its features, benefits, and how it differs from a regular plan.
What is a Direct Plan in Mutual Funds?
A direct plan in mutual funds is a plan in which an investor directly invests in a mutual fund scheme without the involvement of a distributor or a broker. In other words, investors can invest in mutual fund schemes directly through the mutual fund house’s website or by visiting the branch office.
On the other hand, a regular plan in mutual funds involves an intermediary such as a broker or distributor who helps investors to invest in mutual fund schemes and earns a commission for their services.
Features of Direct Plan in Mutual Funds
Here are some of the key features of a direct plan in mutual funds:
- Lower Expense Ratio: Since there is no intermediary involved in the investment process, the expense ratio in a direct plan is lower than that of a regular plan. The expense ratio is the annual fee charged by mutual funds to manage the investments.
- Better Returns: As the expense ratio is lower in a direct plan, the returns generated are higher than those in a regular plan.
- Easy Access: Investors can directly invest in mutual fund schemes through the mutual fund house’s website or by visiting their branch offices, making it easy to access and invest in mutual funds.
Benefits of Direct Plan in Mutual Funds
Here are some of the benefits of investing in a direct plan in mutual funds:
- Higher Returns: Direct plans offer higher returns compared to regular plans as the expense ratio is lower.
- Cost Savings: With lower expense ratios, investors save on the commissions paid to intermediaries, thereby increasing their overall savings.
- Transparency: Since there is no intermediary involved in the investment process, investors can have greater transparency in their investments.
- Control: Investors have greater control over their investments as they make investment decisions without the influence of intermediaries.
Difference Between Regular Plan and Direct Plan
Here are some of the key differences between regular plan and direct plan:
- Expense Ratio: The expense ratio in a regular plan is higher than that of a direct plan as it includes the commission paid to intermediaries.
- Returns: The returns generated in a direct plan are higher than those in a regular plan as the expense ratio is lower.
- Access: Investors can directly invest in a mutual fund scheme in a direct plan through the mutual fund house’s website or branch offices, while in a regular plan, they need to go through an intermediary.
In conclusion
a direct plan in mutual funds is an excellent investment option for investors who wish to invest in mutual funds without the intervention of intermediaries. Direct plans offer lower expense ratios, higher returns, transparency, and greater control to investors. However, investors must conduct thorough research and analysis before investing in mutual funds to make informed investment decisions.
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Frequently Asked Questions (FAQs)
Q. What is a direct plan in mutual funds?
A direct plan in mutual funds is a plan in which an investor directly invests in a mutual fund scheme without the involvement of an intermediary such as a broker or distributor.
Q. What is the difference between a direct plan and a regular plan in mutual funds?
The main difference between a direct plan and a regular plan in mutual funds is the involvement of an intermediary. In a regular plan, investors invest through an intermediary who earns a commission for their services, whereas in a direct plan, investors invest directly without any intermediary.
Q. What are the benefits of investing in a direct plan in mutual funds?
The benefits of investing in a direct plan in mutual funds include lower expense ratio, higher returns, transparency, and greater control over investments.
Q. How can an investor invest in a direct plan in mutual funds?
Investors can invest in a direct plan in mutual funds through the mutual fund house’s website or by visiting their branch offices.
Q. Is it better to invest in a direct plan or a regular plan in mutual funds?
It depends on an investor’s preference and investment objectives. A direct plan may be a better option for investors who are comfortable making investment decisions without the help of intermediaries, whereas a regular plan may be suitable for investors who prefer the assistance of intermediaries.
Q. Are all mutual fund schemes available in direct plans?
Yes, all mutual fund schemes are available in both direct and regular plans. However, the NAV (Net Asset Value) of a direct plan may be slightly different from that of a regular plan due to the difference in expense ratios.
Q. Do direct plans have a higher risk compared to regular plans?
No, the risk in both direct and regular plans is the same as the mutual fund scheme’s underlying investments are the same. However, the returns generated in a direct plan may be higher due to the lower expense ratio.
