When it comes to investing in mutual funds, the investor has the option to choose between a regular plan and a direct plan. When you invest via a distributor, you get a regular plan. Investment directly via the asset management company (AMC) constitutes a direct plan. Read on to know what differentiates the two, so that you are able to make an informed investment decision.
A regular plan differs from a direct plan primarily in terms of the cost structure. The cost associated with this structure translates into a higher expense ratio, which is then built in to the cost of the plan. For instance, when you invest through a broker/ distributor through a regular plan, they earn an income by way of distribution or transaction fees. This also adds to the cost, which is then passed on to the investor. Consequently, the net asset value (NAV) of a direct plan is higher than that of a regular plan. On the other hand, when you invest in a regular plan, you can avail of the benefit of investment advice and support from the intermediary, whether it is a financial consultant or your bank, for example.
Hence, when you look at both, the direct plan is beneficial when you want less expense ratio. Finally, the route you choose, i.e. whether a direct or regular plan, should be one of your decision making factors. The others include your financial goals, risk appetite and investment horizon.
Mutual fund investments are subject to market risks, read all scheme related documents carefully.