It is not a simple solution when it comes to investing in Direct Plan Vs Regular Plan of mutual funds. While the Direct plan seems to be the obvious choice in a first look. But a deeper analysis and conditions might show you that there are some advantages in the Regular plan too. Direct funds came into picture due to the reforms of the industry implemented by SEBI from Jan 2013.
In a regular plan there is a mutual fund agent / adviser between the investor and the Asset Management Company (AMC). The agent will help the investor to choose the fund and also take care of the documentation. But in a direct plan, the investor has to do all these by his own. The AMC pays the Agent an upfront commission on the invested amount in a regular plan. These charges are deducted From the NAV of the fund (Generally 0.5 to 1.5 % per annum). However, In a direct plan these charges are absent. I am discussing the topic Direct Plan Vs Regular Plan below.
When it comes to fund management, the portfolio, and other items like theme of investment, exit loads etc all will remain same. The absence of charges will lead to higher returns in the direct plans. Taking the power of compounding for longer terms, direct plans seem to be obvious choice.
Apart from the difference of returns, there are other activities involved. If you have a good adviser who can beat this difference, investing in a regular plan makes sense. The adviser takes care of documentation and also suggests management of portfolio. The pitfalls in this is if you have a not so good adviser. Advisers some times tend to maximize their earnings than the investor interests. (Not all, but i had been into this trap twice Once from my bank and the second from an adviser). But if your adviser is working for you and has some good picks for you, regular plan is rally worth considering.
In case of the Direct plans, the investor need to do his own research and spend considerable amount of time to identify the right choice and also for the documentation. The best part is you are responsible for your own actions and investments. This leads to lot of care being taken. There is enough information and tools available to choose funds. You can find the information from Value Research or Morning star, Money control etc. These are respected websites and have a very reliable information. You can even track the performance of your investments through these websites. They have advise better than most of the advisers available around.
Personally I prefer direct plans and doing my own research for my investments. The time I spend is worth for me and I enjoy the time spent on picking mutual funds. However, for a first time investor, it is advisable to pick a right adviser even if it means a little less returns. Direct Plan Vs Regular Plan in Mutual Funds is finally your own choice and the decision is going to affect the returns on your investments.
Disclaimer : These are completely my personal views and I am not a certified adviser for any financial product at the time of writing this article. It is my experience of reading and going through various information available. Readers are advised to take their own additional information before making their own choices.