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Mutual fund sale in India comes in two categories – Direct & Regular selling of funds. You buy the former directly from an asset management company, while you can buy the latter from an intermediary. Why go for a regular plan, while you can buy the same plan directly – the article covers this point in detail.
  1. What are direct mutual funds?
  2. What are regular mutual funds?
  3. Difference between direct & regular plans
  4. What are the advantages of regular funds?
  5. Why invest with ClearTax?
  6. Summing it up

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1. Direct Mutual Funds

Mutual funds an investor buy directly from an asset management company (AMC) are direct plans. There are three mutual fund types you can buy. In the direct mutual funds, agents, brokers or other intermediaries have no role. Investors are free from commission or distribution fees, which brings down the expense ratio. Even when you start an SIP or make a lumpsum investment, they will not levy any transaction charges. This is because you are directly paying the mutual fund company. They have a different Net Asset Value (NAV), and the prospectus will specify “Direct” to help investors identify direct plans.

2. Regular Mutual Fund Plans

When you buy a mutual fund through a mutual fund broker, distributor or advisor, it is called a regular plan. For every regular fund, the fund house pays commission to the middleman for bringing a new investor to their plan(s). The AMC will add this commission to the expense ratio. This is why regular funds are slightly more expensive than direct funds. At a glance, direct funds can seem a good deal as it is cheaper. For regular funds, this extra money is for the services from the intermediary you buy from – agent, broker or distributor. However, the hasty decision to choose a low-priced mutual fund may not always work to your advantage. Unless you are well-informed do-it-yourselfers, you might need help to research and choose a fund as per your requirements. In that case, regular funds would be a better choice. Direct and regular mutual funds

3. Difference between direct & regular funds

In a regular plan of a mutual fund, a sales commission is paid to the middleman or brokers who get business for them. the amount of commission varies between 1-1.25 percent per year. Although your monthly statement doesn’t reflect this amount, the NAV or net asset value of your mutual fund units adjust accordingly. From a direct plan, AMCs do not pay any sales commission, so annual returns are generally 1-1.25 percent higher in case of a direct plan. However, an intermediary understands your investment profile and risk appetite and guide you accordingly. A certified financial expert, they can save you plenty of time by picking out the best plan for you from 100 others.


Direct Plan

Regular Plan

Expense ratio Lower Higher (commission to the intermediary)
Advise/Guidance No Yes
NAV Higher Lower
Research & market knowledge required Perfect for the market and investment savvy The qualified intermediary guides as per the individual goals and risk appetite
Convenience Less More
Returns More as the expense ratio is lesser Less as the AMC fee is more
As you can see from the above example, the returns of a particular fund between a direct plan and a regular plan vary between 0.8-1.25% annually. But it all depends on how market savvy you are and whether you need external help. Happy customers are instrumental to the reputation of distributors. So, they are sure to recommend you the best.

4. Advantages of regular funds over direct funds

a. Convenience

Even though direct plans means lesser expense ratio, it needs more of an effort from the investor. Investors have to shortlist funds based on their goals and risk profiles, and then shortlist funds that meet their needs. An intermediary will already have an understanding regarding these.

b. Expert guidance

Comparing and analyzing mutual fund performance and matching it with an investor’s financial goals and risk profile requires in-depth knowledge. A qualified professional (agent/distributor) can guide you towards the right investment portfolio. Also, they can impart you with their market expertise and get you to invest in funds that give good returns.

c. Regular monitoring and reviewing

An individual investor may not have the time, patience or knowledge to review his portfolio every now and then. Here, the distributor reviews your portfolio returns and help you re-balance the asset allocation, as required. This can lead to even better returns. Doesn’t this justify the additional expense ratio?

d. Value-added services

Regular plans don’t stop at selling you a mutual fund or reviewing it regularly. They help you facilitate and track your investment. Therefore, it is more consumer-friendly.

5. Why invest with ClearTax

ClearTax Invest offers you handpicked plans, but they are regular plans. Your expense ratio will be slightly more than that of direct plans. However, they come with a slew of benefits. With hundreds of options, investors might find it daunting to shortlist and finalize the fund(s), he wants to invest in. There are plenty of parameters to consider and analyze before choosing. The reputation of the fund house, the age of the fund, past returns, and financial ratios to name a few. We have done all the homework and present investors with a diverse choice of portfolios. Investors can choose one as per their financial goal and budget like tax-saving, short-term or long-term. Start investing.

6. Conclusion

In short, both direct and regular plans have its set of pros and cons. However, you should remember that there is absolutely no difference in the portfolio composition and investment strategy of both. The difference in returns is purely due to the commission paid to the middleman. So, start investing, and choose one that suits your investment acumen.

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