Direct mutual fund plans were introduced from January 1, 2013. In this article, we list the difference in returns between an 8-year SIP in a direct plan and a regular mutual fund. Fearing that this would disrupt sales, SEBI has still not renamed “regular plans” what they really are: “commission plans” – nothing “regular” about them.

However, thanks to advances in technology, the Direct Plan AUM has grown slowly but steadily – nearly 40% of total industrial AUM when we look at the Average Assets under Management (AAUM) reported on AMFI for the October-December 2020 quarter view (without) ETFs without regular / direct plans and domestic funds of funds). Hence the screams “direct AUM is not sticky”. About 30% of total direct AUM is held in cash and overnight funds (usually institutional funds).

For those who don’t know how regular plans work: every day before the net asset value is declared, Mutual funds deduct their expenses and commissions for sellers from the regular AUM plan. In the direct plan there is no commission, only expenses.

The next time a seller proudly declares that they have paid from AMCs for the service they provide to investors, please remind them that the AMCs are merely removing the commissions from the current market value of the investments.

While it’s obvious that regular plans cost the most and would give back less, the real reason to avoid regular plans is the conflict of interest involved. When someone you employ is paid by someone else – from your money, and you have no control over payment terms, the arrangement, to put it simply, is far from ideal.

The choice in front of the investor is very simple:

  1. DIY. Mutual funds are not rocket science, although many investors want to be rocket scientists.
  2. Get impartial advice from a SEBI-registered fee advisor

Investment funds with direct or regular plan: 8-year SIP yield spread

We considered 266 schemes for this study. The complete dataset is available on request. We present some results here.

The largest difference in return and investment value was found for the HDFC Hybrid Equity Fund. howeverThe currently available net asset value is only the adjusted net asset value responsible for the merger of the system in 2018. The numbers (shown below) are significantly higher than the rest of the package and so are not taken into account. The numbers for the Twin HDFC Balanced Advantage look better, however.

The following table shows the data for the “top” 15 funds. If a Rs. 1000 per month SIP was started on January 1, 2013, the XIRR of the direct plan investment would be 1.93% higher than that of the regular plan investment (see picture below for yield differences).

This may not sound like much, but the value of the direct plan investment would be (16.37 x 1000) times the regular plan investment for the Invesco midcap fund (1st entry below). That’s 16.37 months in which investments in commissions are lost.

Schema nameAmount in the form of SIP rates that have been lost due to commissions
Invesco India Midcap Fund16.37
Invesco India Financial Services Fund13.70
Invesco India Contra Fund13.54
Invesco India Multicap Fund13.39
Invesco India Infrastructure Fund13.19
Axis Midcap FundApril 13
BNP Paribas Mid Cap Fund12.93
Canara Rob Emerg equity fund12.92
Invesco India Growth Opp Fund12.62
Invesco India Largecap Fund12.19
Edelweiss Mid Cap Fund12.01
BNP Paribas Multi Cap Fund11.89
BOI AXA Tax Advantage Fund11.72
Axis Focused 25 Fund11.71
Indiabulls Blue Chip Fund11.62

The following image shows the XIRR return differences and the actual value.

Table of 8-year SIP yield spread for mutual funds with direct and regular plan
Direct vs Regular Plan Mutual Funds 8-year SIP yield differential

The dates are self-explanatory and the choices are obvious.

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About freefincal & its Content Policy Freefincal is a news media organization dedicated to providing original analysis, reports, reviews and insights into developments in mutual funds, stocks, investments, retirement planning and personal finance. We do this without any conflict of interest or bias. follow us on Google news. Freefincal serves more than one million readers (2.5 million page views) annually with articles that are based only on facts and detailed analysis of its authors. All statements are verified from credible and knowledgeable sources prior to publication. Freefincal does not publish any paid articles, promotions, PR, satire or opinions without data. All opinions presented are only conclusions that are supported by verifiable, reproducible evidence / data. Contact information: Letters {at} freefincal {dot} com (sponsored contributions or paid collaborations are not maintained)


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