The difference in returns of direct plans and regular plans, though small, could be substantial over a longer period of time
04-Feb-2015 •Arpit Kaur
Direct plans of mutual funds complete two years in January, 2015. A look at the performance of the direct plans in the top 20 funds in terms of asset size reveals that most of them managed to offer slightly superior returns than the regular plans.
For example, if an investor invested ₹10,000 in direct plans of these funds via systematic investment plan (SIP) in the last two years, he would have earned around ₹2,000-3,000 more. An analysis of the returns of the SIPs in the top 20 mutual fund schemes reveals that Reliance Tax Saver offered ₹3,408 more in its direct plan. The scheme offered ₹4,25,899 on an SIP in its direct plan and ₹4,22,499 in its regular plan.
The amount may appear small, but one should also remember that direct plans have been around only for two years.
Direct plans of mutual funds were introduced in January 2013 to help investors save money on distributor commission by investing directly in mutual funds. Also, direct plans were supposed to have a lower expense ratio as mutual funds don't have to pay incentives to sales forces to get the money.
According to the data available from the SEBI, the difference between the expense ratios of direct and regular plans varies between 0.05 per cent to 1.5 per cent. For example, Franklin India Prima Fund's regular plan charges 2.23 per cent compared with 1.14 per cent in its direct plan. Please note that more than half of mutual funds don't declare the direct-plan expense ratio.
