Direct vs Regular Mutual Fund: Which plan can build higher corpus with Rs 10 lakh lump sum investment? See calculations - Mutual Funds | Latest News Updates

Direct vs Regular Mutual Fund: When you invest in mutual funds, you usually get two options to choose from – Direct Plan and Regular Plan. Both offer access to the same fund and fund manager, but the way you invest and the charges you pay are different. These differences can affect your overall returns. Before we compare the returns, let’s quickly know what a regular and a direct plan are.

What is direct plan in mutual funds?

Direct mutual funds are investment plans that investors purchase directly from the mutual fund company, without involving any intermediaries such as brokers, financial advisors, or distributors. As no third-party commission is involved, the expense ratio in a direct plan is lower compared to its regular counterpart, regular mutual funds.

What is regular plan in mutual funds?

Regular mutual funds are investment plans that you buy through intermediaries such as brokers, financial advisors, or relationship managers. These third-party agents act as a bridge between the investor and the asset management company (AMC). In return for their services, they receive a commission from the AMC. This commission is embedded within the fund’s expense ratio, which means regular plans usually carry a higher cost compared to direct plans.

Direct vs regular plan: Expense ratio comparison

To find out which plan can generate a higher return. We have picked the Nippon India small cap fund, both regular and direct plans. The Nippon India Small Cap Fund is a popular equity mutual fund that predominantly invests in the stocks of smaller companies to generate long-term capital appreciation.

Let’s assume a Rs 10 lakh lump sum investment through a Systematic Investment Plan (SIP) for 10 years in the Nippon India small cap fund. One investment is made in the Direct Plan and the other in the Regular Plan.

Nippon India small cap mutual fund gave 22.29 per cent CAGR in 10 years in the direct plan and 21.15 per cent CAGR in 10 years in the regular plan. Now, let’s assume that the investor carried the maturity amount and invested it for another 5 years. Let’s find out which plan could generate a higher corpus.

Nippon India small cap fund	Lump sum investment	Investment period	approx. maturity amount
Direct plan	Rs 74 lakh	5 years	Rs 2,02,38,879
Regular plan	Rs 68 lakh	5 years	Rs 1,77,47,043
Difference in returns	–	–	Rs 24,91,836

The Regular Plan reflects lower returns due to a higher expense ratio and lower CAGR return, compared to the direct plan. The Direct Plan retains more of the return, resulting in a higher maturity value for the same investment amount.

(Disclaimer: The above article is meant for informational purposes only, and should not be considered as any investment advice. ET NOW DIGITAL suggests its readers/audience to consult their financial advisors before making any money related decisions.)

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