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    1. Every mutual fund scheme/ SIP has 2 different plans "Direct" and "Regular"?
    2. Yes No
    3. "Direct Plan" gives 1.5% more returns than "regular plan" year on year?
    4. Yes No
    5. In regular plan this 1.5% goes to agent or advisor?
    6. Yes No
    7. Should this benefit of direct plan be given to investor's?
    8. Yes No
    9. In long run maturity value of SIP of Rs. 5000 in "direct plan" can be higher than maturity of regular plan?
    10. 50 Lacs
      75 Lacs
      1 Crore

    All About Direct Mutual Fund What is Direct Mutual Fund

    Posted By :  admin  Posted Date : 02-09-2017  Last Updated: 13-10-2017

     All About Direct Mutual Fund What is Direct Mutual Fund 

    “For the benefit of investors SEBI has introduced this option of investment in mutual funds without any intermediary. For every mutual fund scheme there are two options one is regular and second one is direct scheme. In general regular scheme has higher expense ratio of 1%, this makes difference in overall absolute gain in terms of money for the investor in short term as well as in long term. Direct scheme of mutual fund empowers the investor by giving higher maturity value by 25% in 30 years. SEBI introduced these plans way back 2012. In these options no intermediary is allowed and no one gets any commission from these Investments. Portfolio of both the schemes Direct and Regular are same.”

    Price you pay in Regular Plan Mutual Fund every year

    As you know that expense ratio is charged on value of your investment every year, if you had invested Rs. 2 lacs 2 years ago and at present the value of your investment is 5 lacs then you are paying 5000 for this year and next year if the value is 6 lacs you would pay Rs. 6000 unknowingly. The charges are linked with the value of your investment, whether it goes up or down. If the value of your investment goes up to 50 lacs in next 10 years would be paying 1% of the value of your investment every year till the time you keep your investment in regular option. Let’s take an example – investment of rupees 5 lacs in mutual fund schemes and we take return on investment of 15% per year. We shall calculate the maturity value of the fund after 5, 10, 15 and 20 years for regular scheme and for direct scheme the return on investment will be 16%.

    Difference in maturity value of Direct Plan & Regular Plan

    Difference with one time investment of Rs. 5 lacs in Equity funds.

    One Time Investment Returns (for example)
    Regular Plan Direct Plan
    500000 15% 16%

    Difference in maturity value of Rs. 5 lac investment.

    Years Maturity Regular Plan Maturity Direct Plan Difference in Maturity Value % Difference
    5 1005679 1050171 44492 4.42%
    10 2022779 2205718 182939 9.04%
    15 4068531 4632760 564230 13.87%
    20 8183269 9730380 1547111 18.91%
    25 16459476 20437122 3977646 24.17%
    30 33105886 42924938 9819052 29.66%

    Difference with regular monthly investment of Rs. 5000 in Equity funds as SIP.

    SIP Returns (for example)
    Regular Plan Direct Plan
    Rs. 5000 15% 16%

    Difference in maturity value in SIP

    Years Months Maturity Regular Plan Maturity Direct Plan Difference in Maturity Value % Difference
    5 60 436710 447579 10868 2.49%
    10 120 1315091 1387647 72556 5.52%
    15 180 3081828 3362111 280283 9.09%
    20 240 6635367 7509160 873793 13.17%
    25 300 13782804 16219380 2436576 17.68%
    30 360 28158852 34513818 6354966 22.57%

    These plans are extremely beneficial for the people who wish to hold dare Investments for longer period. Like if you run SIP next 20 years as you should be, direct plan will give you higher maturity amount by 10%. As earlier mentioned these plans have less expense ratio of .75 % – 1.25 % per year. It doesn’t look normally 1% every year to your advisor, but when it comes to 25% sharing of maturity value with your investment advisor most of the people would like to evaluate the quality of advice and services provided by the mutual fund agent. Investor is the only stakeholder in terms of taking risk on the amount of investment in this scenario sharing of 25% in absolute terms is not viable.


    Why you should invest in Direct Plans – Benefits of Direct Plans of mutual funds

    At present the urban population of India is fairly aware of mutual funds and it’s schemes. Some people buy mf schemes from mutual fund agents, some through advisors and some people invest in mutual funds directly from the Asset Management Company – AMC. In general people feel that all the options are same, for successful investment some points are really important.

    Value addition from your advisor

    There are thousands of plans in mutual funds and there are schemes for every class like there are very good schemes for investors advised by advisors, similarly there are very good schemes agents to sell (gives very high commissions to agents). Now the matter of concern is from whom you are taking the advice because the irony is both advisors and agents call them advisors. Now you need to ascertain that what is the value addition is being added to your investments. Don’t consider relation the only criterion to take services of your known one, this can seriously make you lose in long run. Evaluate or select your financial advisor in terms of Professional qualification, knowledge, resourcefulness, services, transparency, infrastructure, dependability, cost and finally the value addition for you because of his/her services. Otherwise mutual fund schemes are open to all and if you feel there is conflict of interest with your financial advisor you can do the transactions on your own. Direct plan puts financial intermediaries into pressure to perform and add value to customers otherwise the customers can go Direct.

    Transparency in services from advisor

    Direct Plan gives us opportunity to evaluate the price we pay to the advisors for his /her services and value addition. Because of transparency in the pricing of Regular and Direct plans now investors can chose from whom they want to take the services. If your advisor is competent enough he/she can charge from you directly as per his terms. Else investors are skilled to deal with. Now no one can ask exorbitant charges to make transactions on your behalf as one can transact online.

    Cost Effective

    Because of the difference of 1% in the pricing of Direct and Regular plans, you know how much your agent or advisor is getting yearly from you. This will make you evaluate the price of service and in long run only the competent advisors will remain in the business, part timers will say good bye to this profession. In turn the total cost of advice will come down and the services of competent advisors will be cost effective. This Direct Plan is really a gift from SEBI to people.

    Who should invest in Direct Plans of Mutual Fund

    All the aware investors of mutual funds should consider for investing in this plan. People who feel that invest is there cup of tea and its not for the purpose of just obligation nothing else should not invest in this plan. One should remember that the operational process of investing and after sales is not yet smooth. More over the importance of advisors in your investment is very high but you should know the difference between a seller and an advisor.

    How to invest in direct plans of mutual Fund scheme

    The process of investment in Direct plans is similar to the process of any other investment. First of all you need to know and realize your need or objective of investment and the return you need for the achievement of your objective. Based on time horizon of the goal, return, risk – volatility you should select the scheme for investment and to invest in Direct plan you should know the operational procedure.

    Scheme Selection

    Once you know the time period you can allow your investments to be remained invested for, you can check the required rate of return in your investment holding period. If you need higher returns with some amount of risk then equity can be a good asset class for a period of 5 years plus and if your time horizon is less you should consider Bonds, MIP or Balanced funds. Once you know the category of schemes to be taken, selection of mutual fund scheme is simple, you can shortlist the particular scheme based on consistency of the scheme in the particular time horizon known as holding period returns. As an investor you should be more focused towards holding period returns of scheme, as this will give you fair idea with comparison of returns of schemes in the horizon.

    Operational procedure

    At present every mutual fund scheme has its direct plan, you can buy direct plans directly from the manufacturer – Asset Management Company. If you know that which plan is to be taken for your particular objective you can directly buy it or alternatively you can buy with the help of your investment advisor. These investments can be done by buying direct schemes directly from website of different mutual fund company. You can also buy these funds from online mutual fund account of planyourworld. For this first you need to open the account online and choose the suitable fund from the recommended options for you. You can manage your existing mutual fund schemes in this same account and you can change your regular schemes direct plans at an appropriate time.

    How to monitor your investments in Direct Plans

    The best practice to monitor your investments is to hire your financial advisor, an expert to look after your assets. If you hire your own advisor he/she will take care of this part, here we consider that you will manage on your own. If this is the case you should check your portfolio periodically – quarterly, half yearly or at least yearly. The procedure involves the updated value of your investments in Direct Plans and compare the performance of your funds for you investment objective. You can get your statements directly from the mutual fund companies. If you want to review the portfolio you should repeat the process of selection of mutual fund schemes.

    In total Direct Plan is here to empower the investors by creating an environment where Agents need to upgrade them as advisors, transparency is there in costing and in total quality services will be available to investors.

    Planyourworld offers services to transact Direct Plans from its portal, one can open Online Mutual Fund Account for Direct Plans.

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