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Direct and Regular Mutual fund Plans

Updated on June 11, 2018

In India, Direct Plan of mutual funds had introduced from 1st January 2013. Through this plan, investors who directly Investing in mutual fund companies. They are eligible for the saving of expenses like brokerage commission. These brokerage firms performs an important role in the distribution of mutual funds. Before the beginning of this Plan, an Entry Load of 1 % is charged for every investments. This Entry Load was the Commission of Brokerage Firms.

Amalgamation of Funds

Do you agree with the amalgamation of Direct and Regular funds?

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Expense Ratio

Expense Ration has an important role in the growth rate of mutual funds. I am trying to illustrate here, how the expenses which affects the mutual funds as a long term investment tool. Expense Ratio has an important role in the growth of a mutual Fund.

What are the main expenses for the running of a mutual funds? They are mainly fund management charge, administration charge, Commission for Brokerage Firms, advertisement charges and others. In India, difference between expense ratio of Regular and Direct Plans are about 1 % to 1.5 %. It means that total expense ratio of a regular plan should be more than 1 to 1.5% more than that of a regular plan. It will impact the growth of regular plans.

Please see the following table in which you can watch the difference of Net Asset Value as on 15/02/2018 between Direct and Regular plans, and remember that the NAV of the same funds were same as on 01/01/2013.

NAV of Direct and Regular funds

 
 
 
Fund Name
Regular Fund
Direct Fund
Reliance Growth
1109
1151
ABSL Balanced 95 fund
744
785
HDFC Top 200
443
458
HDFC Prudence Fund
496
517
Sundaram Select Midcap
506
520

Another table put below for revealing the growth of the two types of funds in the same period. It may be more easy to understand the difference. Imagine you are investing Rs 10000 each in the direct and regular plans of the same fund on the 1st January 2013.

 
 
 
 
Name of Fund in which Rs 10000 is invested on 01/01/2013
NAV as on 15/03/2013
Growth of Direct Fund as on 15/03/2018
Growth of Regular Fund as on 15/03/2018
Reliance Growth
501
24376
25268
ABSL Balance '95 Fund
346
21761
22928

Importance of Fund Sellers

Fund sellers have an important role to spread the popularity of mutual funds. They are able to give beautiful platform for the purchase and redemption of funds. Also they are compete to give best service to customers. ICICI Securities, Motilal Oswal, Geojit etc are the famous brokerages who engage in the selling of funds. Also there are many retail sellers and sub brokers who engage in the field. It is sure that many people who engages in this business related with mutual fund. The need of a solution should be evolved which should satisfy both the investors and sellers. What is the remedy for it?

HDFC Prudence fund is the top fund valued mutual fund in India. It has about 37000 Crore Rupees under asset management and it is higher than the total asset under management of many fund houses in India. But there are many funds which have below 100 crore as asset. If we noting, the difference between expense ratio of big and small funds are about same. I think it should be better to amalgamate Direct and Regular funds. Also total expense ratio of Funds more than 1000 Crore Rupees as asset under management should be limited to 1%. Expense Ratio of funds with asset between 500 Crore rupees and 1000 Crore rupees should be limited to 1.5 %. And finally, Expense Ratio of funds below 100 crore rupees should also be limited to 2%.

The investors never look only to the profits. They should be ready to give some part of their profit to the persons who depend this business for their livelihood. Also the fund managers and sellers should be ready to work hard and don't be greedy to book high profit from less work. If the fund have good history, it should grow and the profit of fund managers also will increase. Also, the sellers should try to increase their business and they should also be ready to decrease their profit percentage.

Comments

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    • indraprasad v profile imageAUTHOR

      Indra prasad v 

      7 months ago from India, Kerala, Thiruvanantha puram

      Sure Myil Raj. I will try.

    • myilraj profile image

      Myil Raj 

      7 months ago from India

      I was receiving many calls on my mobile from the unknown person and they claim they are from a brokerage firm. They asking me to invest some of my savings in Mutual funds, for added tax benefits for this year.

      I am bit hesitated to move on because of the following line, "Mutual fund investments are subjected to market risk and please read the offer documents carefully".

      If tax saving is the only option (https://goo.gl/XY5zYn), there are many other ways.

      Can you show replicate some more ideas on various mutual fund investment schemes to save more tax?

      Regards,

      Myilraj G

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