How does ISA works?

What is an ISA account linked to a bank savings account? How does it work?
What difference does it make when an investor is invest for long term in a mutual fund scheme and opt for regular and direct plan options. Why there is a huge difference between the NAV of regular and direct growth options?
- Himanshu Dhanvadan Kapadia

An Investment Services Account (ISA) linked to your bank allows you to buy and sell mutual funds units. The bank charges a fee for the services.

In September 2012, Sebi came out with several reforms in Mutual Funds and launching direct plans was one of them. All AMCs have launched Direct plans which allow investors to invest directly with the AMC without paying the distributor commission. Their existing plans became regular plans, where an investor can invest through an advisor or a distributor. AMCs pay some fee to agents/distributors for their services. Investors can avoid paying this money if they invest directly and it will translate into more returns every year. The difference in returns is expected to range between 0.50 and 0.75 percent. This will make a big difference to the overall returns over a long period.

This article was originally published on October 14, 2015.