Should you invest in a direct plan or a regular plan.
A Direct plan is what you buy directly from the mutual fund company (usually from their own website), whereas a Regular plan is what you buy through an advisor, broker or distributor (intermediary). In a regular plan, the mutual fund company pays commission to the intermediary. This is then recovered as an expense from the plan. In mutual fund speak, the expense ratio is higher for a regular plan.
The return you make on a direct plan is higher by approximately 0.5% for equity funds and approximately 0.2% for debt funds.
One would think this was a simple answer.
Higher returns on direct plans = direct plans are better!
However, the comparison is not that simple. In a way, the difference is a fee you pay to your doctor, lawyer or CA for their professional advice. Whether you should pay that fee or not depends on the investor’s own capability and the quality of service you get.
So, if you are a diligent investor with deep knowledge, meaning that you can pick and track your own mutual funds, then the direct plan is better. The advisor provides no extra value and does not deserve their fee. For most people, however, relying on someone’s recommendation is the only option.
If that person or entity (for example, Scripbox) knows what they are doing and are not being influenced by other factors like the commission they earn, you will get good service and potentially earn more on your investments vs what you could have done on your own. In that case, the advisor has earned their fee and investing in a regular plan would be better for you.
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