Direct Plan vs Regular Plan: What's The Difference in Mutual Funds
Credit: North Loop
Overview
If you’re looking to invest in mutual funds, you may come across direct plans and regular plans. What’s the difference? We’ll examine what is the difference between a direct plan and regular plan - and which is better if you’re using SIPs to invest.
Direct Plan vs Regular Plan
A direct plan, as the name suggests, is when you invest in a mutual fund directly - from their own website. In a regular plan, you will invest in the mutual fund through an advisor, broker or distributor (such as North Loop). So, sometimes, the expense ratio may be higher on regular mutual plans. However, because you have gone through an intermediary such as an advisor, you will get additional benefits with a regular plan - advice, strategy, financial planning etc.
Credit: North Loop
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Which is better - and what does it mean for you as an investor?
You may think that because a direct plan has a lower expense ratio, it’s better. The answer is not so simple.
It isn’t just the expense ratio you should be looking at - the more important factor is the mutual fund’s performance. Investing in a fund, in many ways, is like everything else you pay for - the price doesn't always determine the quality and you should go with what you need most.
A regular plan also has the critical benefit of providing advice and advisors:
Do you know which fund to invest in?
Many times, you may not know which fund to invest in - this is where advisors from regular plans can help. If you only use fees as a consideration, you can lose a lot of money. If you choose a direct plan vs. a more expensive regular plan, and that direct fund underperformed the regular plan by 5-6%, you will have lost money trying to save a fraction of percentage in fees!
Period Reviews, Rebalancing and Adjustments
Your life and goals will change, as does the market. It helps to have someone to talk to, or have a firm providing you with insights and advice or recommended solutions. You are on your own if you do direct. Through regular plans, you will get services from your distributor or advisor such as periodic reviews or rebalancing. Distributors and advisors will review your portfolio, and help you rebalance to adjust to the current market and your updated life goals. This has shown to improve returns by up to 30%, handily beating the 0.5% you may save by using a direct plan.
Time and effort
One of the great things about SIPs and mutual funds is that you can set up a regular investment plan. However, you will have to do periodic adjustments - are you capable and have the time? Having a distributor or advisor helping you with this is extremely beneficial - many people forget about their portfolios, neglect them as they get busy doing other things. This costs them money as no one is watching their money. .
It isn’t just the expense ratio you should be looking at - the more important factor is the mutual fund’s performance. Investing in a fund, in many ways, is like everything else you pay for - the price doesn't always determine the quality and you should go with what you need most.
A regular plan also has the critical benefit of providing advice and advisors:
Do you know which fund to invest in?
Many times, you may not know which fund to invest in - this is where advisors from regular plans can help. If you only use fees as a consideration, you can lose a lot of money. If you choose a direct plan vs. a more expensive regular plan, and that direct fund underperformed the regular plan by 5-6%, you will have lost money trying to save a fraction of percentage in fees!
Period Reviews, Rebalancing and Adjustments
Your life and goals will change, as does the market. It helps to have someone to talk to, or have a firm providing you with insights and advice or recommended solutions. You are on your own if you do direct. Through regular plans, you will get services from your distributor or advisor such as periodic reviews or rebalancing. Distributors and advisors will review your portfolio, and help you rebalance to adjust to the current market and your updated life goals. This has shown to improve returns by up to 30%, handily beating the 0.5% you may save by using a direct plan.
Time and effort
One of the great things about SIPs and mutual funds is that you can set up a regular investment plan. However, you will have to do periodic adjustments - are you capable and have the time? Having a distributor or advisor helping you with this is extremely beneficial - many people forget about their portfolios, neglect them as they get busy doing other things. This costs them money as no one is watching their money. .
Conclusion: Direct Plan vs Regular Plan
A direct plan is great if you are an experienced investor with deep knowledge of the market, as well as a lot of time to monitor and adjust and rebalance your portfolio. However, if you are looking to invest for retirement or goal-based investing, and need advice or recommendations, your best option is to use a regular plan which comes with a wide variety of additional services (North Loop provides regular plans).
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This publication is provided for general information purposes only and is not intended to cover every aspect of the topics with which it deals. It is not intended be advice. You must obtain professional advice before taking, or refraining from, any action on the basis of the content in this publication. The information in this publication does not constitute legal, tax, investment or other professional advice from North Loop or its affiliates. We make no representations, warranties or guarantees, whether express or implied, that the content in the publication is accurate, complete or up to date. All opinions expressed do not reflect the views of North Loop nor are endorsed by North Loop.
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