Most of the retail investors pay 1-2% commissions annually while investing in regular plans.

Many wouldn’t be even aware about it. Reason being, the fund house pays commission on the money you invest to distributors. Due to this distribution cost, you incur a higher expenses ratio in a regular plan.

Initial idea of introducing direct plans was to cut off the long chain of distributors and agents. As this would always add to the cost structure of the fund houses. These cost savings would be passed on the investors in the form of the lower expense ratio.

The expense ratio tells you how much as a percentage of the scheme's corpus the total expenditures are.

The direct plans generate roughly 0.5% to 1.0% additional returns every year.

You might feel that the difference is mere 1%; but in the long-run the returns generated by ‘direct plans’ are higher.

For instance, if you invest Rs 25,000 per month through Systematic Investment Plan (SIP) in a direct plan for 25 years. Assuming 15% compounded annualised returns, you earn around Rs 1 crore more if invested in direct plans as against regular plans.

Yes, 1 crore!

You can use the below calculator to learn how every penny counts.

Select Monthly SIP Amount

₹1000

Both the ‘Regular Plans’ and ‘Direct Plans’ offered by mutual funds have identical underlying portfolio, fund manager and follow same investment strategy.

But did you know that a lower expense ratio for a ‘direct plan’, enables in clocking better returns than a ‘regular plan’.

You might feel that the difference in their expense ratio is mere 1%; but in the long-run the returns generated by ‘direct plans’ are much higher.

Take a look at the chart here...

Actual performance of the portfolio may differ

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Why Direct Plan