Direct Mutual Plans and Regular Mutual Plans refer to two different ways of investing in mutual funds in India. Here are the key distinctions:
Sr. No | Direct Mutual Fund Plans | Regular Mutual Fund Plans |
1 | These are purchased directly from the mutual fund company (AMC), there is no involvement of intermediaries. | These are purchased through mutual fund distributors, they earn commission from the AMC, which is embedded in expense ratio |
2 | Generally have a lower expense ratio compared to regular plans. | Tend to have a higher expense ratio due to the commission paid. |
3 | Typically provide higher returns compared to regular plans over time, primarily due to lower expense ratio. | Typically provide lower returns due to higher expense ratio, which erodes the overall returns. |
4 | The NAV is typically higher because the expense ratio is lower, resulting in a higher net return for investors. | The NAV is lower due to the higher expense ratio, which can lead to a lower net return for investors. |
Securities and Exchange Board of India (SEBI) has mandated that Registered Investment Advisors (RIAs) in India can only provide advice and facilitate investments in Direct Mutual Fund Plans. Here's how the regulation works:
RIAs and Direct Plans: RIAs in India are financial professionals who offer advisory services to investors. They can recommend and facilitate investments only in Direct Mutual Fund Plans, which typically have lower expense ratios compared to Regular Plans.
No Commissions: RIAs are not allowed to receive commissions or incentives from mutual fund companies for recommending specific funds. They earn fees directly from their clients for their advisory services.
Transparency: This regulation aims to ensure that investors receive unbiased advice and make investment choices that are in their best interest, rather than being influenced by commissions paid to advisors.
Client-Centric Approach: By restricting RIAs to offer only Direct Plans, SEBI intends to create an environment where advisors focus solely on serving the best interests of their clients, rather than being influenced by commissions or other incentives.
Difference in Expense Ratio:
Disclosures:
Expense ratio details taken from – Money Control website
The illustration and data provided above is for informational purposes only and does not constitute any kind of advisory.
Standard Warning: Investment in securities market are subject to market risks. Read all the related documents carefully before investing
Disclaimer: Registration granted by SEBI, membership of BASL and certification from NISM in no way guarantee performance of the IA or provide any assurance of returns to investors.
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