Regular Vs Direct Mutual Fund Plans
If you have been investing in mutual funds, you might have observed that there are two types of plans of the same MF scheme are available now. One is a 'Regular Plan' and second one is 'Direct' Plan.Around two years back SEBI introduced 'Direct' Plans. Now, AMCs (Asset Management Companies) provide you with these two options for each and every mutual fund scheme.(Some AMCs offer Direct plans only )
The main difference between Regular plans and direct plans is the Expense Ratio. What is Expense ratio? Expense ratio shows the amount that mutual funds charge for managing the investors' money. A Regular Mutual fund scheme has higher expense ratio when compared to a Direct MF plan. The main reason for this is, there is no intermediary involved between you and AMC (Asset Management Company).
For example – The expense ratio of HDFC Top 200 Fund Direct Plan is 1.65% and the expense ratio of HDFC Top 200 Regular plan is 2.23%.
You can observe that the NAVs (Net Asset Values) of Mutual Fund Direct Plans are slightly higher than the NAVs of Regular plans. So, over a long investment period you can certainly benefit from investing in Direct MF schemes.
For example – The NAV of HDFC Top 200 Fund Direct Plan (Growth) is Rs 359.72(as on 20-Feb-2015) and the NAV of HDFC Top 200 Regular plan is Rs 355.32 .
The difference between accumulated corpus of a Direct Plan and a Regular Standard Plan will be significant if your time horizon is say more than 15 years. (Kindly note that investment portfolios of both regular and direct plans of a scheme are same)