As an investor of Mutual Funds, you must have come across the term “Direct Plan” and “Regular Plans”. But do you the difference between the two?
Ideally, they both are same schemes, however, the difference lies in the ‘advisor/ broker’ factor.
Well, today we at Richvik, present a small article on- Regular Plans VS Regular Plans.
WHAT IS A DIRECT PLAN?
A direct plan is the one where the investor can directly invest in a mutual fund, (usually from their website), instead of going through a broker/ advisor. Here, since the advisor/ Broker element is eliminated, and so is the expense of brokerage on a mutual fund is reduced.
The gains in a direct plan are higher by 0.2-0.5%, and thus your gains could be higher. However there is flip side too, with the advisor element eliminated, not all the investors would be able to take appropriate decisions.
WHAT IS REGULAR PLAN?
A regular plan of mutual fund investment involves direction and recommendations by a mutual fund advisor. The advisor recommends funds/ schemes to you on the basis of your risk profile, time horizon and need of funds. The mutual fund broker, in exchange for your investment, gets a fixed % of brokerage, anywhere from 0.5% to 1% of the total amount invested on quarterly basis.
Now one may argue that a direct plan is a better option than a regular plan in terms of profit margin. A scheme that fetches 6.9% in a direct schemes, may be providing 6.6% in a regular plan. Over a period of years, you will end up with a higher corpus.
But let us look at it this way. Will the chosen fund (by you) perform as you have expected? There are thousands of schemes available for the investors, but how do know how to select the scheme on the basis of your requirement?
You may expect that the scheme chosen by you on own may fetch you 6.9%, however, you may end up only with 4.9% interest in case the scheme chosen by you does not work as desired by you.
Let us look at a comparative chart which will help us understand this well:
|REGULAR PLAN||DIRECT PLAN|
|1.||Here, you invest in funds as recommended by your Advisor/ Bank/ Broker.||Here, you can directly invest into mutual funds through their website or other online methods.|
|2.||There is a small % of brokerage involved such as 0.5% or 0.75% of the mutual fund value||No such brokerage involved, thus the gains are higher|
|3.||Helps you choose the right investment avenues on the basis of your risk profile, Time horizon and financial needs.||The investor need to choose the funds on their after doing proper research of the funds.|
|4.||The advisor shall advise on when one needs to redeem their investments, in case the fund is not performing as desired.||Here, the investor himself has to monitor the funds on their own.|
|5.||The research and monitoring is done by the Advisor. They shall even guide you when one needs to switch.||Here, the investor shall have to themselves perform the research and monitoring function.|
Let us look at some of the benefits of investing through an Advisor/ Broker:
- The Advisor shall advise the funds in which you need to invest on the basis of your risk profile, time horizon and financial needs.
- The research and monitoring shall be done by your financial advisor, thus making the investments more reliable,
- The advisor may even help you achieve an annual compounding rate of 10-14%, which is much higher than a standard fixed deposit or post office savings,
- When it comes to huge portfolio of Lakhs of rupees, it is always advised to seek a professional help for your portfolio rather than you monitoring it yourself.
To conclude, we can say that – Going direct in Insurance where the brokerage Is as high as 35%, proves to be a sensible move, however, going direct in mutual funds, where the brokerage is so meagre, might turn to be a pennywise pound foolish decision.
We at Richvik, provide end to end financial services to our clients, rigt from understanding the client needs, their goals and their risk profile, time horizon of investment and how much they should plan for their future.
We work in the best interest of our clients, and we ensure that our clients receive their financial goals in best possible manner.
To know more on investments, feel free to contact us.