When you invest in a mutual fund, you usually get two options — Direct Plan and Regular Plan. While both invest in the same portfolio, the difference lies in how you invest and the costs involved.
1. Direct Mutual Fund Plans
- Invest directly with the Asset Management Company (AMC) without any intermediary.
- No commission is paid to distributors, so the expense ratio is lower.
- Gives higher returns over the long term due to lower costs.
- Requires you to research and select schemes on your own.
2. Regular Mutual Fund Plans
- Invest through a distributor, broker, or advisor.
- Distributor earns a commission from the AMC, included in the expense ratio.
- Returns are slightly lower than Direct Plans because of higher costs.
- Ideal for investors who prefer professional guidance and advice.
Key Differences
| Aspect | Direct Plan | Regular Plan |
|---|---|---|
| Intermediary | No | Yes |
| Expense Ratio | Lower | Higher |
| Returns | Higher (long-term) | Lower (due to commission) |
| Guidance | Self-managed | Advisor support |
Which Should You Choose?
If you are confident in your ability to research and manage investments, Direct Plans can help you save costs and earn better returns. However, if you prefer expert guidance and convenience, Regular Plans may be a better choice despite the slightly lower returns.
Tip: You can start with Regular Plans and later switch to Direct Plans once you gain enough knowledge and confidence.
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Mutual Funds 101