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Direct Plans Offer a Little Extra

The difference in returns of direct plans and regular plans, though small, could be substantial over a longer period of time

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.

Direct vs Regular

Scheme NameSIP Value DirectSIP Value RegularDifference
Reliance Tax Saver Fund4258994224913408
ICICI Prudential Value Discovery Fund4045854012493336
Birla Sun Life Frontline Equity Fund3417013385403161
Franklin India Prima Plus Fund3651923620783114
Reliance Equity Opportunities Fund3778573747663090
IDFC Premier Equity Fund3745973715143083
HDFC Mid-Cap Opportunities Fund4148334117583075
Franklin India Bluechip Fund3224473195742873
HDFC Equity Fund3568043539812823
ICICI Prudential Focused Bluechip Equity Fund3337643309802784
Reliance Growth Fund3587353560242711
UTI Opportunities Fund3314863287822704
ICICI Prudential Dynamic Fund3356583329852673
Reliance Vision Fund3688313661772654
HDFC Taxsaver Fund3639533616982255
HDFC Top 200 Fund3411363389452191
UTI Dividend Yield Fund3268833248462037
DSP BlackRock Top 100 Equity Fund3212673195071760
SBI Magnum Taxgain Scheme3482893465401749
UTI Equity Fund3430453420391006
Worth of ₹10,000 monthly SIP in the largest equity funds from Jan 2013 till Dec 31, 2014
SIP Value in ₹