January 2013 - The birth of Direct plans

The dawn of 2013 witnessed a landmark reform in the history of Indian mutual funds. On market regulator SEBI's prerogative, mutual funds introduced the Direct plans of all their open-end schemes from 1 January 2013. It was a gamechanger for thoughtful investors such as the subscribers of Value Research Premium.

Investors could now invest in mutual funds without availing the services of a distributor and therefore save on the cost of their commissions. Earlier, even if an investor invested directly with a mutual fund by logging on to their website, he'd still need to bear the higher expense ratio that came embedded with the distributor's commission. Pretty unfair, isn't it? But that changed overnight with the birth of the Direct plans.

The institutional investors were quick to switch over, but retail investors were slow to adopt them initially since they relied on the advice of their distributor (of course, that's not an issue for a Value Research Premium member!). But with increasing awareness of the benefits of Direct plans, coupled with the advent of platforms selling Direct plans, they are now becoming popular among retail investors.

Wondering how much difference a Direct plan makes to your returns? Well, in the case of equity funds, it typically works out to be around 1 per cent of your investment value per year. Yes, every single year! That matters (a lot!) over long years of investment. Just to illustrate, if you'd been investing Rs 25,000 per month since January 2013 in the Regular plan Kotak Flexicap (one of our recommended funds), you would have accumulated about Rs 32 lakh by now. But had you opted for the Direct plan for the same amount, you would have amassed over Rs 35 lakh. That's an extra 10 per cent for nothing other than ticking on the Direct plan while investing. And this difference will keep increasing as years pass by. So you agree that the birth of Direct plans was a game-changing moment, don't you?

Fun Fact: For someone owning equity funds worth Rs 5-6 lakh, simply switching to Direct plans will cover their annual cost of Value Research Premium subscription. The advantage of top quality recommendations and tools from the oldest and the most trustworthy research company in the business will be an add on. Pretty cool, isn't it?

This article was originally published on January 12, 2022.