Regular plans in mutual funds are investment options where you purchase fund units through a distributor or agent, who receives a commission from the fund house for their services. This differentiates them from direct plans, where you invest directly with the fund house.
Understanding Regular Mutual Fund Plans
Here's a more detailed breakdown:
- Distribution Channel: Regular plans are sold through intermediaries like mutual fund distributors, brokers, or financial advisors.
- Commission Structure: The fund house pays a commission to the distributor. This commission is factored into the expense ratio of the regular plan.
- Expense Ratio: Regular plans typically have higher expense ratios compared to direct plans because of the distributor commission. This means you'll likely see slightly lower returns over time compared to a direct plan investing in the same fund.
- Convenience and Advice: Investors often choose regular plans for the convenience of having a distributor assist with investment decisions, provide market insights, and handle paperwork.
- Suitability: Regular plans can be suitable for investors who are new to mutual funds, prefer personalized advice, or are comfortable paying a bit more for the services of a distributor.
Key Differences: Regular Plan vs. Direct Plan
| Feature | Regular Plan | Direct Plan |
|---|---|---|
| Distribution | Through distributors/agents | Directly from the fund house |
| Expense Ratio | Higher (includes distributor commission) | Lower (no distributor commission) |
| Returns | Generally lower due to higher expenses | Generally higher due to lower expenses |
| Investment Advice | Typically includes advice from the distributor | Investor responsible for their own research |
Example
Imagine two people, Alice and Bob, both invest in the same XYZ Equity Fund. Alice invests through a regular plan offered by her financial advisor, while Bob invests in the direct plan online. The regular plan has an expense ratio of 1.5%, while the direct plan has an expense ratio of 0.75%. Over the long term, Bob's returns are likely to be slightly higher than Alice's due to the lower expense ratio in his direct plan. However, Alice benefits from the guidance and support of her financial advisor.
In conclusion, regular plans offer convenience and professional guidance but come with a higher expense ratio, potentially impacting long-term returns compared to direct plans.
