Mutual funds offer 2 types of plans when you invest in their schemes: Regular plan and the Direct plan. What’s special about the direct plan? If you invest in a direct plan, you do not need the services of a mutual fund agent, commonly known as a mutual fund distributor.
You could invest in the direct plan online, or even visit the AMC (Asset Management Company) office to make your investment. A mutual fund scheme has to affix the word "DIRECT" in the scheme name, to be called a direct plan of a mutual fund scheme.
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You invest in the direct plan of a mutual fund scheme online, without the help of a mutual fund distributor. Why is this good for you? The Mutual fund (Asset Management Company) does not have to pay a commission to mutual fund distributors, to sell these direct plans. The mutual fund passes on this saving in commission to you….The Investor.
You would be able to invest in the direct plan, at a lower price than a regular plan. The direct plan of a mutual fund scheme, has a lower expense ratio (a measure which gives you an idea of the expenses of the scheme), than the regular plan. You would get higher returns in the direct plan of a mutual fund scheme, rather than a regular plan of a mutual fund scheme.
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You get a slightly higher return, if you invest in the direct plan of a mutual fund scheme, when compared to the regular plan of a mutual fund scheme. But there’s a small problem… You do not need the services of a mutual fund distributor, if you invest in the direct plan of a mutual fund scheme.
You’re going to miss those visits by your mutual fund distributor. Say bye bye to convenience…. No distributor to come to your doorstep and collect all your documents. You have to do all the dirty work yourself. Visit the AMC (Asset Management Company) office. Do the KYC (Know Your Customer). It’s quite a headache.
If you invest in the direct plan offered by the mutual fund, you could get a higher return than the regular plan. You could get a return, which is 0.5% to as high as 1% more, than the regular plan each year. This looks a small amount to save.
Remember: A small seed grows into a big tree. In very much the same way, this small difference (0.5-1%) becomes very high with time (say 10 to 15 years). This is the power of compounding.
There is another reason why you must consider an investment in direct plans. For many years you have invested in equity mutual funds, blindly following the advice of your mutual fund distributor. There is a chance that your mutual fund distributor could mis sell you mutual fund schemes, to pocket a commission. Let’s say your mutual fund distributor is an honest man, who does all the research for you. This also can be bad for you, as you are walking with a crutch. When will you learn to walk yourself? You must do your research before investing in a mutual fund especially an equity mutual fund.
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