Direct vs Regular plan in Mutual Funds

There are two different types of mutual fund plans and it is absolutely critical than we understand what these are... The reason.. it can make a significant difference in the money that you will make..!!

What is a regular plan
This plan is basically bought through a broker. The broker is a middleman ( a financial planner , a broking house , a bank) who is enabling the purchase of the mutual fund by the investor. 

In this case, the middleman is spending their resources to sell , fill in the forms, take the form to the mutual funds house etc.

Now to keep these middleman interested in selling their wares, they give them a commission .. almost 1- 1.5% of the overall investment that the investor has in the mutual funds... every year!

This is not unfair.... these middlemen are their sales reps.. so of course they need to be paid. They are also doing a service for you... so if they are not charging you then this is a nice fees for them.

What is a direct fund

A direct fund is a scheme where the mutual fund house bypasses the middleman and allows the investor to directly interact and invest with the fund house.  When this happens the mutual fund doesn't need to give the commission and it passes on the 1-1.5% to you as lower fund house costs thus increasing the returns they are able to provide to your portfolio.

Of course this means that the onus on you as an investor increases quite a bit . You now need to go to the website of the fund houses and make a payment, you need to get the entire paperwork done and you need to keep a track of all of your investments because they are now in different places .

Now.. Let's look at this.. does it make sense to go for direct plans .. and do all that effort. Here are some pointers.

1. Now days all of the mutual fund houses have good decent websites from where you can purchase the sip or any lumpsum investment.

2. The fund houses will also enable you to track your investments.. but only for their find house.

3. One can even use the same websites to redeem the portfolio if so desired.

So.. it's no longer too difficult to make the middleman go away... because the amounts can be quite a big one.

So if you have 30 l portfolio then the person is making somewhere around 30- 45  thousand a year on your investment.. this can be a significant amount . . Especially as you look at a multi year portfolio.

It is best to get onto the bandwagon of direct plans.. it take a little effort.. but spending that effort is truly worth it. .. and it's simplefinancialsense!!