Different Mutual Fund Investment Plans in India 2024
There are different mutual fund investment plans available in India for investment as mentioned below:
Regular Plan in Mutual Fund
If you buy a Mutual Fund through an intermediary like a mutual fund advisor, distributor or broker then it is called "Regular Plan" . In this, the mutual fund company pays commission to the intermediary for his services. This amount of commission is then deducted as an expense from the plan. Therefore, the expense ratio is higher under Regular PlanRegular Plan as compared with Direct Plan.
Direct Plan in Mutual Fund
If you buy directly from the Mutual Fund without any involvement of any intermediary, it is called "Direct Plan". The savings on intermediary's commission are passed on to investors in the form of lower expense ratio.
The NAV of both the plans is calculated separately and therefore differs.
In September 2012, the regulator of Mutual Funds, SEBI, made many reforms in Mutual Fund Industry and launching Direct Plans was one of them. After that each Mutual Fund Company launched Direct plans along allowing investors to invest directly with the Mutual Fund with lesser expense ratio.
As you get higher returns on direct plans due to lesser expense ratio, hence the direct plans are better for Mutual Fund investments. The difference in expense ratios usually remains between 0.50% to 0.75% in regular and direct plans. It looks very small though, but it matters a lot over the period of few years, if one remains invested. It makes this huge gap due to the compounding factor in the long run.
It is to note that a scheme's portfolio will be the same for both plans i.e. Regular plan as well as Direct Plan. Also, the other features of the scheme like Investment Objective, Investment Strategy, Asset Allocation, Risk factors, Load Structure, etc. remain same in both the plans.
Direct Plan vs Regular Plan of Mutual Fund
| Basis of Difference | Direct Plan | Regular Plan |
|---|---|---|
| Definition | An investor has to invest directly with the AMC without any distributor | An investor invests through an intermediary like distributor, broker or banker |
| Cost | Lower cost | Higher cost |
| Net Asset Value (NAV) | Higher than the regular plan | Lower than the direct plan |
| Returns | More than regular plan | Lesser than direct plan |
| Financial Advisory Services | Not available | Available which helps to identify suitable funds based on risk profile and investment goals of the investor |
| Fund performance monitoring | Investor needs to monitor the performance of the fund on his own | Financial advisor monitors investor's portfolio |
| Expense Ratio | Generally, direct plan has a lower expense ratio than regular plan | Generally, regular plan has a higher expense ratio than direct plan |