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Mutual Fund Schemes offer two types of plans, Direct Plan and Regular Plan. In direct plan investment, no intermediary like mutual fund distributor or agent is involved, and investors can directly invest with the fund house
While in regular plan investment, an intermediary like mutual fund distributor or mutual fund agent is involved, that carry out the investment processes in the fund house on the behalf of the investor.
Financial experts believe and suggest investing in a regular plan, however as direct plans in mutual fund schemes cost low expenses ratio, several investors choose to invest in the same. However, direct investing is not an easy game and an investor needs to be well versed with mutual funds and the securities market
Investing in a direct plan of mutual fund scheme includes both disadvantages and advantages, and more than that they include high risk, which we are discussing below.
Benefits of Investing In a Direct Plan Of Mutual Fund Schemes……
Charges Low Expense Ratio-
TER or Total Expense Ratio, most of us know, is a kind of fee charged by a scheme from investors for managing their investments. TER applies to both, Direct Plan and Regular Plan.
For equity-oriented regular plan, it ranges from 1% to 2.5% of the assets under management. For regular debt schemes, the expense ratio ranges from as low as 0.05% to 0.6 %.
For direct schemes, the TER is reduced by as much as 1.5% for an equity scheme. It means if a regular scheme is charging 2.5% to investors, investments done in the same scheme through direct mode will be charged 1%.
This difference between the TER cost indirect plan and regular plan cut down the investor's cost by investing in the direct plan of mutual fund schemes.
Generate Good Returns-
The TER cost charged to investors is lesser in the direct mode of investments in mutual funds since there is no distributor involved, more funds are invested in the underlying portfolio.
This results in better returns for investors in the long run. It is seen that direct schemes tend to generate 1-1.5% more return for investors compared to regular investment.
Cons Of Investing In Direct Plan Of Mutual Fund Schemes………
Mistakes In Selecting Schemes-
Each mutual fund house offers a wide range of mutual fund schemes. Picking up the most suitable fund for investment is not an easy task. Often investors pick up schemes as per past performance without taking into consideration future expected performance.
And this way they end up investing in yesterday’s winners, and thereby lose out on the potential return which could otherwise have been made if other schemes were picked for investment.
Decision Making-
Starting an investment in a mutual fund is an important decision, but that is not all. Investors must review and reallocate their portfolios depending on the market condition. However, it is generally witnessed that direct investors fail to take the right decision at various stages of the investment tenure.
Biased Decision-
Direct investors tend to develop certain biases which eventually lead to bad investment portfolios. The concentration of similar kinds of funds or funds one has developed a liking for without getting into basics is a normal phenomenon among direct mutual fund investors.
Biased investment decisions neglect the asset allocation basics which could turn riskier.
Let Us Sum Up!
Direct investment in a mutual fund, is beneficial, but only to investors who properly understand the basics of investment and the risk included. Investors who understand the volatility of the market, keep themselves calm during volatility, and manages their portfolio efficiently can go investing in a direct plan of mutual funds.
However, investors who are new to the investment, have very little knowledge about the market volatility and the risks involved, thus they are advised to invest in a regular plan of mutual funds.
Well, an investor should always remember, that A piece of good advice from a fund manager can prevent you from picking an unsuitable scheme and help you unleash your potential for wealth creation.
That means whether you are a novice or experienced investor, you should always seek expert advice in your investment. Thus, always plan to invest in a Regular Plan Of Mutual Funds!
You can contact your fund manager or can visit Ashutosh Securities Pvt. Ltd. for any further assistance in mutual fund investment. Keep reading our article and stay updated with the latest news about Mutual Funds!
For any kind of query, you can contact us at Shri Ashutosh Securities Pvt Ltd., we are here to help you in any way possible.
Happy Investing!
(Mutual Fund investments are subject to market risk Illustrations are for example only, there is no guarantee of returns. Past performance is not an indicator/guarantee to future returns).