There are two ways available for any investor willing to invest in the mutual funds: Regular plan or Direct plan. The SEBI introduced, on September 13, 2012, a separate plan to direct investments for the investors who choose to invest without routing the transaction via a distributor. While investing in mutual funds through a regular plan leads the investor to contact a distributor or broker who demands commissions.
Both these ways have different returns with the difference of 0.50 to 0.75 percent between them. The direct plans provide the better returns than the regular plans. The return you make on a direct plan is higher by approximately 0.5% for equity funds and approximately 0.2% for debt funds. After introducing the direct plans, the AMCs (Asset Management Company) started to launch their own direct plans for the investors that leads the investors to get connected with AMC directly without any involvement of an advisor or broker. The expense ratio is lower for direct plans in comparison with the regular ones. That is why, the investors are preferring to invest, on lower costs, in the direct plans to regular plans.
This fiscal year of 2016-17 has been a good year for the direct plans as it got succeed to attract more investors due to the higher returns and less expense ratio. The other reasons for the more investment in the direct plans than in the regular is the financial awareness among the investors. Observing its benefits, the 12 percent of the individual investor’s shift from regular to direct plans.
The major fund houses, like HDFC, ICICI Prudential, Reliance, also have noticed a rise in the returns of their own direct plans. The schemes provided by these fund houses under the direct plans offered higher returns, like HDFC Top 200-Direct Plan, offered 30.23% returns, ICICI Prudential Dynamic Fund’s direct plan gave 32% return while Reliance Equity Opportunities Fund-Direct Plan offered 19.65 percent return, this fiscal year.
According to data provided by an online mutual funds research firm, Value Research, the share of assets under management (AUM) of direct schemes has increased to 14% at the end of March 2017 quarter that was calculated to be 4.2% in the March 2014 quarter.