Which is better: regular or direct?

Direct plans of mutual funds can save you a packet. New mobile-phone apps have now sprung up which make direct mutual funds as easy to buy as your groceries. But are they a good fit for everyone? Jai and Veeru debate who should go for direct plans and when it makes sense to stick with regular plans. Veeru: Nice to see you. What has put that smile on your face today? The market's not looking all that great. Jai: No, no. I was pleased about the emails I got from some of my mutual funds, stating that they are cutting the total expense ratios (TERs) on their direct plans. Veeru: What do you mean 'cutting the TERs'? Weren't direct plans supposed to be cheaper than regular plans already? Two months ago, SEBI even issued a circular reducing the total TER cap for all funds by 0.25 per cent. Jai: Yes, many equity schemes cut their expense ratios for their regular plans after that circular. But some of them also quietly hiked up the expense ratios for their direct plans. That's why I was worried. Veeru: That's quite shocking. How come they hike direct-plan costs? Jai: Well, I read that after SEBI's recent moves to prune fund expenses, AMCs were taking a revenue hit on their regular plans, so they decided to make 'adjustments' in their direct plans to make up. But the good thing is that a study by SEBI's mutual fund advisory committee discovered this adjustment and SEBI has since rapped fund houses on the knuckles for this. Veeru: Good to see a vigilant SEBI. Jai: But how come you don't know this? Don't you invest in direct plans? Veeru: No. All my mutual investments are in regular plans, though an advisor.

This article was originally published on January 17, 2019.