Some brokers tell investors that Direct Plans are more Expensive than Regular Plans and it is not advisable to invest in them. Please do not fall for this argument! Direct Plans are better for you. We will take you through an illustrative Direct Plans NAV calculation and compare it to a Regular Plan.
Say I invest Rs 100,000 in the Regular Plan and Rs 100,000 in the Direct Plan of a new scheme both at an NAV of Rs 100. So I get 1000 units of both the Regular Plan and the Direct Plan of the scheme in my investment account.
Breaking down a simple NAV calculation of Direct Plans vs Regular Plans
Let’s see what happens to each of these Rs 1,00,000 investments. For simplification, we assume all the expenses incurred by the fund are divided into two broad heads Fund Expenses and Commissions. Fund Expenses include items like fund manager salaries, office rent, electricity, marketing costs etc incurred by the Mutual Fund company to collect funds from investors and manage this money. Assume this be around 1% of AUM. Commissions includes anything that gets paid to the distributor for collecting money from investors such as you and I. Assume this be around 1.5% of AUM.
Now let’s look at the NAV calculation for my Regular Plan and Direct Plan investment.
|No of Units purchased||1,000||1,000|
|Add: Returns on the investment||12,000||12,000|
|Less: Fund Expenses||1,000||1,000|
|Divide by Number of Units||1,000||1,000|
|NAV at the end of 1 year||109.5||111.0||1.36%|
As you can see, the NAV of the Direct Plan is higher because they do not have commission expenses. So don’t listen to these false arguments against Direct Plans.
Directs Plans investments get better with time
Let’s look at it in another way. Suppose I invest in the Regular and Direct plan at the end of year one. I’ll be buying the Regular Plan at 109.5 and the Direct Plan at 111.0. Let’s see what happens to both of my investments in 10 years.
|No of Units purchased||913.24||900.90|
|Add: Returns on the investment||210,585||210,585|
|Less: Fund Expenses||29,440||29,440|
|Divide by Number of Units||913.24||900.90|
|NAV at the end of 10 year||265.54||312.07||+17%|
So my investment in the Direct Plan of the scheme will be worth 17% more than the regular plan in just 10 years!
Please see the chart above to see the NAV difference between Direct Plans and Regular Plans over multiple years. The higher NAV over time is not a because Direct Plans are more expensive, it is because over time Direct Plans perform better.
Thus, Direct Plans are better for you.
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January 30, 2020 AT 08:34
Hi, I need to merge to folio of same fund to one. Please help to do that.
February 3, 2020 AT 04:01
You will have to write to the AMC to get this done. Please email [email protected] and we will send you the procedure.
February 24, 2020 AT 07:07
What if a broker is not just a broker, he is a financial advisor. he helps u in goal planning and manage the overall portfolio. In my case, i have a big portfolio allocated to MFs. So is it advisable for me to switch to direct funds?
February 25, 2020 AT 03:50
If you want to pay for advice, pay specifically and transparently i.e pay them for advice and know the exact amount you pay them for it. Commissions embedded in regular plans are not a clean way to do so.
March 25, 2020 AT 03:32
How can I convert my older and current MFs from regular to direct once I import my portfolio in Kuvera?
April 9, 2020 AT 13:58
Please email [email protected] and we will advise.
July 28, 2020 AT 13:38
I have to convert my Regular plane from NJ india into Kuvera Direct plane please helping me on it
August 3, 2020 AT 08:13
Please email [email protected] and we will send you detailed steps for NJ India.
October 3, 2020 AT 16:26
I have sip in ventura securities, I would like to transfer to kuchera from exists in ventura. Kindly help me.
October 5, 2020 AT 03:40
Sure, please email to us at [email protected] and we will share the steps.
October 19, 2020 AT 04:47
Is there any capital gain tax while switching from regular to direct plan?
October 20, 2020 AT 01:11
Yes, there is Ankit. And TradeSmart ( https://kuvera.in/feature/trade-smart ) will show you the tax impact before your switch to optimize your switch schedule.
December 20, 2020 AT 07:04
How much commission kuvera charge if we subscribe direct plan through its app?
December 20, 2020 AT 14:31
None, we don’t get any commission.