Mutual funds or MFs allow individuals to invest both with the help of a financial intermediary and also without involving or routing the investment through any distributor/agent. The plan which requires a distributor is known as a regular plan, while the latter is known as a direct plan.

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'Regular plan' and 'Direct plan’ are both parts of the same mutual fund scheme, have the same/common portfolio, and are managed by the same fund manager, but have different expense ratios.

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How to invest in direct plans of mutual funds?

In direct plan, as Deepak Khurana, Proposition Sales Director, Sustainable Finance and Lipper, Asia-Pacific, Refinitiv says, an investor invests directly with the Asset Management Company (AMC), typically from the mutual fund company’s website or by submitting a physical application form at the investor center of their selected fund house by eliminating all intermediaries like the advisors, brokers, or distributors who facilitate the transaction.

Features of direct plans

According to Khurana, direct plans usually have a higher Net Asset Value (NAV).

NAV represents a fund's per unit market value

“This is because there is the absence of any agency in direct plans. Also, there is the elimination of distribution fees which is otherwise charged to the investor in regular plans,” Khurana opines.

“The lower expense ratio of a direct plan translates into higher returns on the investments which keep compounding over the years. This makes the investment in the direct plan more lucrative and productive over a longer period of time when compared to investment in any regular plan of the same scheme,” he explains.

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However, according to the Association of Mutual Funds in India (AMFI), it must be borne in mind that the difference between the NAV of a direct plan and a regular plan tends to be marginal. Thus, although there may be additional gain in the direct plan, it may not be significant to make a big difference.

Who should opt for it?

Since no advisor is involved, as per Khurana, direct plans are best suited for investors who understand their investment needs, risk appetite, are able to identify and shortlist the funds they plan to invest in, and are ready to invest without the help of any intermediary.

In short, a direct plan makes sense for the knowledgeable. On the other hand, new and inexperienced investors should go for a regular plan, experts suggest.

Disclaimer: The views and investment tips expressed by investment experts on CNBCTV18.com are their own and not that of the website or its management. CNBCTV18.com advises users to check with certified experts before taking any investment decisions.

First Published:Dec 8, 2020 10:43 AM IST