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Direct vs Regular Mutual Fund: Which One You Should Pick?

The one question i often get asked by people is Direct or Regular Mutual Fund? Which one we should pick? So before getting to any conclusion, let’s understand the difference between these two first.

In 2012, Securities and Exchange Board of India (SEBI) had come out with a number of reforms which included the introduction of direct plans in mutual funds. With effect from January 2013, every mutual fund comes with two options now: A regular plan and direct plan.

What’s the difference?

Regular and Direct plans are just the two options to buy the same mutual fund scheme managed by the same fund manager who invest in same bonds and stocks. The only difference between these two is, in a regular mutual fund AMC (mutual fund house) pays a commission to the distributor/agent as a distribution fee whereas, in case of a direct plan, no such fees/commission is paid.

The Direct Plans you can buy directly from AMC/Mutual Fund Company whereas a Regular Plan is what you buy through an advisor with his/her professional advice.

Which one is better?

So usually the companies who sell direct plans promote that you can save 1% in direct plans and get higher returns than Regular plans. So people think that higher returns means direct plans are better than regular plans. But wait, let’s understand this in detail.

In direct plans, the returns you make are higher by approximately 0.5% for equity funds and approximately 0.2% for debt funds. But in direct plans, investors are advised to do their own market research and select top-performing mutual fund schemes.

But that’s not the case with regular plans. Professional financial advice is essential and can make a huge difference to returns. So when you invest in a regular mutual fund, the expert financial advisors actually help you to understand and manage your investments more effectively with their experience resulting in better returns as compared to what you get by investing on your own in direct plans.

The expert financial advisor recommended portfolios could lead you to a difference of as much as 4 to 5% in return over a period of time. So people eventually by trying to save that 1% commission choose direct plans not knowing the returns which they get through professional advice easily overtake the commission percentage.

Why you need Financial Advisor?

Why we go to doctor when we are not feeling well? Why we consult lawyer for legal advice? Why we hire a CA to file our returns? We can do it ourselves and can save their professional fees just like in direct plans right? But we do it because they have expertise and you know the result of their professional advice will be more beneficial than your own rookie judgments. Then why you take that same risk when it comes to your money? Isn’t your hard earn money is more valuable for you?

A financial advisor will always help you to analyze the track record, matches your risk profile and invests your money in a fund which is suitable for your goal you are investing for. A financial advisor’s job is to help you to review your portfolio and re-balance the same whenever it’s required. You can also save your time and effort as many people simply won’t keep a regular track of their investment and goals resulting in not achieving their financial goals.

Which One You Should Pick?

It’s simple. So if you are a diligent expert investor with deep knowledge of investing, mutual funds and share market and can pick, track, re-balance and do necessary changes in your portfolio whenever required then direct plans are better for you.

But if you are an investor who wants to invest your hard earned money to achieve your financial goals and also need professional advice to make sure your investments are on track to achieve your goals then you should go for Regular Plans.

About author

Rohan Khedkar, Co-founder & Chief Executive Officer (CEO) of UpWealth is a AMFI Certified Mutual Fund Adviser & SEBI Certified Investment Adviser.
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