Jun 20, 2017 4 min read

Are Direct Plans Really Better Than Regular Plans? Let’s Understand

Here is what you should know about direct plans.
Other than investing in regular plans of a mutual fund, these days the love for investment in direct plans is growing in most of the investors. Direct plans were launched in January 2013, with the primary objective of allowing the knowledgeable investors to deal in mutual funds directly without any intermediary, which further helped them to save commissions paid on their investments.

There is no doubt that many well-informed investors are doing a great job of managing their funds efficiently on their own. But do you know direct plans are considered to be the wealth destroyers by many industry experts? Would you like to know the reason behind? Let’s get the same here.

Due to the avidity of investors to save that 1% commission paid to the mutual fund advisors in the case of regular plans, investors jump towards direct plans even with least knowledge about managing the funds. Although they believe that they have saved a big amount and getting higher NAV for their mutual funds, is it really true? Do they make good wealth in direct plans? Here are certain cases which show how direct plans fail to generate riches in most of the cases:

Case 1: A is investing in the mutual fund and has schemes of large-cap, mid-cap, and small-cap categories in his portfolio. Knowing little sector funds, he is willing to add a micro-cap scheme to his portfolio with an aim to diversify risk.

Case 2: B has all top-rated schemes in his portfolio across different categories, but he does not know whether these plans are best suited to him.

Case 3: C has invested in some schemes through Systematic Investment Plans (SIP) around seven months back. Now, those funds are showing negative trends in the graph due to market downturns, and thus he has stopped his SIP and wants to sell off all his investments.

In the above cases, A has mistaken the concept of diversification. Whereas, B thinks that all top-rated schemes are always safe and generate good profits. And C has pulled back his hand from investments seeing the market in a little down condition. With this, you can understand how people with least knowledge in the investment market end up making wrong decisions of investing in the direct plans.

Why Ain’t Direct Plans Performing as Expected?

These days people are very keen on investments because they know the importance of savings and earning more wealth. But, the problem lies in the choices they make due to which they tend to lose their money. Many people with little or zero knowledge about the market fundamentals have switched their investments from regular to direct plans. They face the following problems due to which they fail to earn wealth in the direct plans:

Time the Market : Investors who jumped into direct plans of the mutual funds with least market knowledge often lack in timing the market. They can hardly identify the market to decide when to buy or sell. With a slight downturn in the fund’s performance, they tend to sell their investments off which definitely doesn’t prove to be a good decision.

Knowing Your Risk Profile : Sometimes it happens that the risk profile which the investor is comfortable with, and the risk profile which he/she opts for in a mutual funds investment vary with a huge margin. In such a case, the investor misses the opportunities to earn more profits by exposing to a little higher risk, which one can bear as per one’s investment portfolio. That is why it is better to pay a commission of around 1% to the mutual fund advisors or the brokers in regular plans of investment rather than losing big opportunities and wealth by making poor decisions.

Choosing the Wrong Fund : People who invest without taking the advice of fund’s expert or having little knowledge, often end up choosing the wrong funds. Further, most of them swear never to return to the investment market due to the fear of losing capital.

Thus, you must understand that you cannot avoid the help of a mutual fund advisor to walk longer in the mutual fund investment market. It is not a big deal to pay a small sum of money to the broker or advisor in a regular plan instead of facing high losses in the long run. If you do not have good knowledge about a mutual fund investment, it doesn’t mean you cannot invest in it. You can, but by opting for the regular plans. Keep investing in regular plans with the help of a fund advisors, until you learn the pros & cons of investment.

You can also opt for Systematic Investment Plan (SIP) through which you can experience much safer investment tour to reach the objectives of earning wealth. Our platform, MySIPonline has all the best-recommended schemes of different categories of mutual funds. You can invest in any one of them as per your needs and suitability.