A lot has happened in the past one year since direct plans came into existence which allowed investors to directly invest in mutual fund schemes. Astute investors benefit by investing in direct plans in which the commission that would otherwise have been paid to intermediaries goes to the fund's NAV, and thus to investors.
When analysing how direct plans have fared, we figured that the move to direct plans under money market and liquid funds account for almost 50 per cent of the total assets under this category (See: Tilting Scales). However, the same cannot be said for short-term and long-term funds. Effectively equity funds have far less takers of direct plans.
But smart investors who have invested in direct plans are reaping benefits. When comparing returns between direct and regular plans of a scheme, it turns that the direct plans lead by 75 to 100 basis point. Although this may not seem attractive enough for those who are still to move to direct plans, they should realise the compounding benefit of investing in this option. Already several schemes have managed to create a higher difference in returns between the direct and the regular plans. The difference between the direct and regular plan of Kotak Balance fund was 2.98 per cent as on Dec 31, 2013 (See: What you gain).
Better returns alone is compelling for you to consider investing in direct plans, but you should decide on doing so depending on your comfort. After all, with time the variation is likely to be significant between the returns from a direct and regular plan of the same fund scheme. For instance, ICICI Prudential Focused Bluechip regular gave a return of 8.74 per cent in 2013 while its direct variant gave a return of 9.54 per cent. The compounded return for the next ten years results in a significant difference of ₹35,159 between the regular and the direct plan.
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