Several reforms were undertaken by SEBI in 2012, including the introduction of direct plan in mutual funds. With impact from January 2013, each mutual fund has two options: a regular plan and a direct plan.
There are two options accessible from the same mutual funds, managed by the same fund manager investing in the same bonds and stocks. The only difference between regular mutual fund and direct mutual fund scheme is that in the case of a regular mutual fund, your mutual fund house pays the broker/agent a commission as a distribution fee, whereas in the case of a direct plan, no such fees/commission is paid.
The difference between regular mutual fund and direct mutual fund scheme
Returns: In the case of regular plans, the returns are smaller than in direct plans, as the latter do not include any brokerage charges/commissions. Also, returns from direct plans continue in the compound.
Value-added services: When you invest in regular plans, you will be provided with an expert financial advisor to help you better understand and handle your fund. You need to do your own analysis and adequately understand the depth of mutual funds to achieve excellent yields in the event of direct mutual fund schemes.
Reasons for investing in direct mutual funds
Direct plans are helpful for those who want to invest directly in mutual fund schemes without any intermediary. Fund officers can generate better returns by reducing their expense ratios.
Removing the commission increases the returns in the long term.
It is suggested that investors conduct their own market research and in the case of direct mutual fund scheme, select the top-performing schemes for mutual funds. By accessing websites and blogs from mutual funds, investors can research to learn more about schemes suitable for mutual funds.
Direct plans work best for those who want to increase their yield by investing directly through the fund and can manage documents on their own. While the method may seem a bit complicated in the initial stages, investing in the additional scheme should be comfortable.
Reasons for investing in regular mutual funds
Returns can make a big difference with adequate professional financial advice. If you repeatedly invest in mutual funds, advisors can help you understand and manage your investments.
The output of a mutual fund is often different, and the selection of the fund is crucial. A good mutual fund advisor can help you choose a good fund that can guide you to a difference of 4 to 5 percent over a while.
A financial advisor can help you review your portfolio and rebalance it. You can save time and effort not only by maintaining a regular track for low yields.
Conclusion – In short, for both direct and regular schemes, there are a set of pros and cons. However, you should note that there is absolutely no difference between the portfolio structure and the investment strategy. The difference in yields is mainly due to the commission paid to the arbitrator. Start investing and choose the one that best suits your investing spirit.