With the advent of January 2013, several AMC has come up with Direct Plans in Mutual Funds as per the SEBI Guidelines, which offers several leverages to investors in following ways:
- · With Direct Plans 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 run 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 led investor’s 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, an investment made through MF Distributor is limited due to their Empanelment with Specific Fund Houses which led Direct Plan more attractive to the investor to select schemes of their choice of scheme and risk.
- · As, there is a little percentage difference in regular and direct plans but in the long-term, it affects investor’s return capability. Let’s understand with an example:
o Mr. Chandu has invested Rs. 30 Lac as Lump-Sum directly XYZ MF Equity Scheme – Direct Plan (Expense Ratio -1 %), whereas Mr. Sharma has invested the 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 an 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 live outside the country (NRIs/other Residents) needs to contact their distributor to invest in MF which increases either their cost due to the availability & time issues of either parties or the accessibility of the distributor.
Therefore, with the direct plans, an investor from anywhere in the world with a good internet connection can invest directly in MF scheme of their choice with just a click of a button.
Further, it also enhances Financial Literacy among themselves on the advantages and disadvantages of the MF Scheme which was not possible with distributor’s led Regular Plans.
Thus, investing in direct plan 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.