All mutual funds have two plans –
Regular and Direct
. Direct plans give higher returns every year because investors do not have to pay commissions. Despite this, nearly 90% of retail investors invest in Regular plan mainly due to lack of awareness. Investors can now transact in Direct plans through platforms such as Orowealth.
What are direct plans in Mutual funds?
In 2013, SEBI announced that every mutual fund scheme will need to have two plans. One would be the regular plan which had existed till date. In addition, mutual funds had to introduce a direct plan of the same scheme which would be similar to the regular plan in all respects but would have a lower expense ratio (i.e. fees you pay the mutual fund). This is because when you invest in the direct plan, there is no distributor involved and the commissions that mutual funds have to pay distributors to go away.
Paying lower fees on exactly the same fund directly translates into higher returns for investors. The difference between the expense ratio of regular and direct plans can be as high as 2% for some mutual funds (Figure 1). On average, direct plans are 0.66% cheaper than the corresponding regular plans – that is a discount of nearly 40%!
Figure 2: Direct plans are a cheaper way of accessing exactly the same mutual fund
Does the difference in expense ratio matter?
A difference of 1-2% in returns may not seem much at first glance. However, this extra amount is being paid to the distributor every year. When combined with the power of compounding, paying commissions can put a big hole into your final earnings. How big, you can check by using the interactive graphic on our homepage:
As an example, suppose you had invested Rs. 10 lakhs at the beginning of the period in a fund in which the direct plan has an expense ratio of 1% and the regular plan has an expense ratio of 2%. Further, assume that the fund earns a conservative return of 10% before costs. Then at the end of 10 years, the difference in your earnings between the two plans will be Rs. 2.1 lakhs. or more than one-fifth of your initial investment corpus. After 20 years, with the compounding, the difference will be a massive Rs. 9.5 lakh or nearly your entire initial investment corpus!
Table 1: Small gains can add up to big returns in the long-term
Growth in investment with the direct plan
Growth in investment with the regular plan
Extra earnings with the direct plan
Initial Investment amount
10% – 1% = 9%
10% – 2% = 8%
Now you may not be invested in the same fund for that long but as long as you plan to be a mutual fund investor for some time, these numbers can’t be ignored. This can be gauged from the fact that the smart money investors in India (i.e. large institutions, corporates, and similar professional investors) have already migrated almost completely to direct investing. After just 2 years of introduction, 70% of smart money investments happen in direct plans.
Maybe I am already buying direct plans?
Unlikely. Only 10% of retail investors have invested through direct plans. There are a number of reasons for this. First and foremost is the lack of awareness among retail investors about direct plans. This has to do in large part with the fact that the distributors, who are closest to investors, have no incentive to promote direct plans. In fact, many of them market their services as “free” to the client, conveniently overlooking the fact that they get paid every year from the investor’s money, even though it is via the mutual fund.
A second reason is that so far it has been difficult for retail investors to invest in direct plans. The main way of doing this has been by maintaining separate accounts with each mutual fund company which is cumbersome.
Finally, many retail investors are also scared away from direct investing by distributors and platforms which claim to offer expert advice that investors will miss out on if they go direct. Professional financial advice is important and can make a big difference to returns but the important question to ask is – Is commission-based model the best way to get investment advice? Mis-selling i.e. selling investors the highest commission products is the biggest flaw in this model. The second question is whether that advice should actually cost 2% per year. Instead by going direct, investors can use just a part of the saved commissions to hire an unbiased, fee-based advisor whose incentives will be aligned with their own.
Investing in India is all set to change with Orowealth (
) – India’s first direct funds’ platform. For the first time, ever retail investors can transact in direct plans with the same convenience and level of service as standard plans. For investors looking to further enhance returns with financial advice, Orowealth also has an online fee-based advisory platform. Invest with ORO and experience the difference that truly low cost investing and unbiased, good quality advice can make to your returns.
Rutvij BhutaiyaPosted at 05:38h, 22 September
Ohh! Your Table 1 has hit the nail on the head. I am 27 years old, if I choose direct plan for next 30 years different would be 32 Lacs.
Swati AggarwalPosted at 06:14h, 22 September
Yes Rutvij. For young people like yourself who will stay invested for a long time the loss from regular plans/benefit from direct plans is even greater. If you are already invested in MFs, then you can now actually see the amount of commissions you are paying. From 1st Oct 2016 onwards, this info will be revelaed in your consolidated account statement.
dillip swainPosted at 21:18h, 12 November
What is your benefit????
Swati AggarwalPosted at 09:40h, 13 November
Hi Dillip, We charge a small convenience fee for transactions in direct funds. In addition, we also offer fee-based advisory services where the execution is routed through direct funds. For more details on pricing, please see here: https://lpl电竞官方观看正规.com/#plan
Shubham BansalPosted at 17:58h, 13 November
Plz let me know the fees you charge for transacting ?. Are there any hidden charges? Assume if we invest Rs 5000 and after one month it grows to Rs 6000 then how much you charge while redemption of Rs 6000? And how much time it will take to redem?
Shubham BansalPosted at 17:59h, 13 November
This comment has been removed by the author.
Swati AggarwalPosted at 13:00h, 14 November
Hi Shubham, You can check our pricing plan in detail here: https://lpl电竞官方观看正规.com/plans . There are no charges besides these. To your specific query at the time of redemption, we charge a one time convenience fee. This will be Rs 50 if redeemed amount is under Rs 1lakh and 0.1% of the redeemed amount for amounts > 1lakh. Time taken for redemption is exactly in line with industry standards – for debt funds you will receive the redeemed amount in your bank on t+1, if request is submitted before noon. For equity, it is t+3.
Shubham BansalPosted at 13:11h, 14 November
While purchase you also charge Rs 50? And every while purchasing or redeeming you charge Rs 50 ? Also by SIP you charge Rs 200 ? Your are charging enough fees then what is the point to choose direct plan
Swati AggarwalPosted at 13:49h, 14 November
Hi Shubham, There is a big difference between the convenience fee charged by ORO and the commissions that you have to pay in regular funds. For a lumpsum investment, consider the table we have provided in the blog. Suppose the investor invests for 5 years, then based on the assumptions above, they would have lost Rs 69,296 due to commissions. In contrast, if they had bought a direct plan through ORO, it would cost them Rs 1000 at the time of purchase and Rs 1540 at the time of redemption, So Rs 2540 in total. Rs 2540 vs. Rs 69,296 is a very big difference! The case for SIP investor is similar. Consider the SIP example in this blog: http://blog.lpl电竞官方观看正规.com/2016/02/sip-calculator-calculate-your-savings.html . Over 5 years, SIP investor has to pay Rs 1000 to ORO vs. losing Rs 38,946 to commissions. Hope this answers your query.
Shubham BansalPosted at 14:04h, 14 November
According to information given on your website there is 0.75% p.a. Extra Earning in comparison with regular plan and i am planning to invest Rs 10,000 amount in mutual fund ,so according to your calculation I will save Rs 284 in three years in comparison to regular plan .But you are charging Rs 200 (for SIP) + Rs 50 (buying) + Rs 50 (redeem) = Rs 300.Then why should i go for this , i can directly invest with AMC or Camsonline or MFutility.
Shubham BansalPosted at 14:05h, 14 November
This comment has been removed by the author.
Swati AggarwalPosted at 16:59h, 14 November
If you are going to invest Rs 10,000 lumpsum and keep it for 3 years: ORO fees would be Rs 100 (50 for purchase and 50 for redemption) vs. Commissions in regular plan of Rs 225 (assuming 0.75% p.a. as commissions and assuming 0% return on the fund. Please note commissions will be higher if the return is positive).
Vivin TauroPosted at 02:42h, 09 January
Do you have annual charges to maintain an account with you ??
Swati AggarwalPosted at 05:57h, 09 January
Hi Vivin, You can check our pricing policy here: https://www.lpl电竞官方观看正规.com/plans
Divyendra SinghPosted at 19:45h, 25 April
Can we convert our existing regular. Funds into direct funds using lpl电竞官方观看正规.
Swati AggarwalPosted at 06:50h, 26 April
Yes you can convert regular plans to direct plans very easily through oro wealth. Please login @ https://www.lpl电竞官方观看正规.com/login to start investing/switching with ORO Wealth. If you need more information you can also talk to someone from our customer care team on these numbers: https://www.lpl电竞官方观看正规.com/contact
Manoj GuptaPosted at 16:33h, 06 May
Good explanation and awareness.
GOVIND JHAPosted at 07:50h, 29 May
what are the type of sip plan do you have
Swati AggarwalPosted at 09:40h, 29 May
This comment has been removed by the author.
Swati AggarwalPosted at 09:42h, 29 May
Hi Govind, With ORO, you can do a SIP in direct plans of any mutual fund/AMC supported by us. In case you would like to know ORO charges for SIP, you can check those here: https://lpl电竞官方观看正规.com/plans . As a comparison, you can check the amount of commissions that you can save when you opt for a direct SIP vs regular SIP in this blog post: http://blog.lpl电竞官方观看正规.com/2016/02/sip-calculator-calculate-your-savings.html . Please let me know if you have any further clarifications.
Virendar MattaPosted at 09:08h, 15 September
My family (Self, wife & son) has invested >Rs 5.00 lacs in MF. we also have two SIP accounts. Planning to invest 1-2 lacs in a months time.
My Questions are: a)Can we maintain all existing Mf accounts thru you. b) For Future investments(long term 5-10 years) in MF does ORO assist in selecting correct MF.
kc jainPosted at 06:18h, 08 November
I have 27 Lac invested already thru Sangam Investment. Can it be transferred to Direct plan now thru you? If yes, what charges you would accept
Virendar MattaPosted at 06:37h, 08 November
We have existing MF & SIP, can we map them to ORO, if yes how and what's our benefit. For further investments will ORO assist us in selecting the correct MF for 5-10years term window.
xfinity.com/authorizePosted at 08:02h, 14 January
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xfinity.com/authorizePosted at 08:18h, 14 January
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