Chapter 5 – Difference between regular and direct plan?
What are Direct Plans?
Mutual fund direct plans are those where AMC’s do not charge any intermediate fees, commission or trails from the investor. In other terms, there are no middle men or brokers in direct plans. This plan leaves more for the investor.
What are Regular Plans?
If you make an investment in Mutual Funds through a broker or any other intermediary, they charge your commission and trails. This way of investment is the regular plan. This commission is charged on your asset value every year and hence over a long term costs you around 30-50% of your investment value. Read more
- Are direct plans available for all mutual fund schemes?
Yes. SEBI came up with a regulation in 2013 that all mutual funds schemes need to have a direct plan option. Hence from 1st Jan 2013, all mutual fund schemes have a direct plan option.
- What is the benefit?
The investors under direct plan get better returns than the investors under regular plan. The returns would be higher by 0.5% to 1.5% P.A
- How can i invest in direct plan?
You can invest in direct plans through Wealthtrust app. You can switch your existing regular plans to direct plan in second using WealthTrust.
- Do I lose anything if I switch to Direct plans?
There are two things that you need to keep in mind while switching: exit load and tax impact.
- Exit Load: Check whether your investment is beyond the exit load period. For example, most equity funds have a exit load of 1% if you switch/sell within 1 year of purchase. Hence if your investment is less than one year old and if you switch now you would need to pay 1% exit load on switching. However in the case where your investments are more than one year old there will not be any exit load charges
- Tax impact: A switch transaction is considered as a sell and a buy for taxation purpose. Hence the gains made at the time of transaction are taxed. For equity mutual funds if you switch after one year of investment there will be no tax impact as the tax rate for LTCG (Long term capital gain) in equity funds is 0%.
Back to Chapter 4 – What are dividend & growth mutual fund scheme and how to choose?
Continue to Chapter 6 – Advantages of Mutual funds
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