What will be difference in cost between the Direct plan and Regular plan of a MF scheme? I want to purchase DSP BlackRock Micro cap fund through the Direct plan but the agent said if you go for Direct plan, the cost value will be more than the Regular plan of same fund.
- Amiranjan Choudhary
Your understanding is not correct. When you buy any mutual fund scheme, you pay both an upfront commission to the distributor and an annual recurring fee as long as you hold the fund. Both are a part of the fund's expense ratio which is deducted before calculating its NAV. Now, in the case of Regular plans you are assumed to be going through a distributor and therefore the expense ratio deducted is higher (it includes his commission). This makes for a lower NAV on Regular plans. In case you don't go through a distributor, that is the Direct Plan. The expenses deducted are lower (no commission) and the NAV is thus higher.
Over a long period, because Direct Plans charge lower expenses year after year, they can generate higher returns than Regular plans. A scheme's portfolio will be the same for both, Regular plan and Direct Plan.
Direct plans can fetch you higher returns, but they also require more hard work from you as an investor as you have to do all the paperwork and deal with the AMC on your own. However, if you feel you are not capable of managing all your investments and getting to your financial goals entirely on your own, then you might as well choose regular plans through your agent or distributor.
This article was originally published on June 17, 2016.
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