Is it worth switching from regular to direct funds?

Have you initiated your mutual fund journey through a financial advisor or agent? If yes, then you have been investing in regular plans of mutual funds. But if your financial awareness has expanded and you want to switch to direct plans, here's what you need to know and whether the switch makes financial sense. Regular plans have a higher expense ratio The expense ratio of regular plans includes the commission paid to mutual fund agents, which is why it is higher than that of direct mutual fund plans (usually by around 1 per cent). The 1 per cent may seem small, but it can put a significant dent over time. To illustrate the impact, let's consider a Rs 10,000 SIP initiated on November 1, 2023, for various time horizons. Using average returns for flexi-cap funds over the last 10 years (14.22 per cent for regular and 15.34 per cent for direct plans), the difference in investment value of regular and direct plans becomes evident. Amount invested Invested for Investment worth (Direct plan) Investment worth (Regular plan) Rs 6 lakh 5 years Rs 8.80 lakh Rs 8.56 lakh Rs 12 lakh 10 years Rs 26.79 lakh Rs 25.22 lakh Rs 18 lakh 15 years Rs 63.53 lakh Rs 57.61 lakh Rs 24 lakh 20 years

This article was originally published on November 17, 2023.