Direct vs Regular Plan: Which SIP Option Is Better?

Direct Plan vs Regular Plan: Which is more suitable for you?

One of the first decisions you need to take when beginning your mutual fund sip investment journey is choosing between a direct plan or a regular plan. Both the plans have their pros and cons. Though, both allow you to make a mutual fund sip investment they differ in how the investment is made and the costs involved.

Understanding these differences can help you make a more informed decision based on your investment knowledge, comfort level, and long-term goals. In this article, we’ll break down what direct and regular SIPs mean, how they compare, and which one may be more suitable for you.

What is direct plan?

When you directly invest with the mutual fund house of your choice it is opting a direct Plan. This means that you, as the investor, make your own decisions about where to put your money and how to manage your mutual fund SIP investments.

One of the key potential benefits of a direct plan is that it has a lower expense ratio compared to regular SIP. This happens because there is no commission cost involved. Thus, you can get every penny’s worth as well as get comparatively better returns in the long term.

Having established this, it is important to consider the costs involved with a direct plan. One of the first thing to consider is that in a direct plan, you need to do your own research and analysis. This means that you need to constantly monitor your portfolio, track fund performance and understand your risk profile regularly.

This type of research demands a significant amount of time and involvement from your end. Hence, a direct plan is suitable for investors who are confident in making independent investment decisions or have some prior experience in mutual fund investing.

What is regular plan?

Regular plan entails you setting up your mutual fund SIP investment through a mediator. This intermediary can be a mutual fund distributor, financial advisor or even an online platform. This middle man is there to help you choose the suitable funds and offer ongoing support.

While regular plan have a slightly higher expense ratio due to distributor commissions, they can be a suitable option if you prefer guided advice and support throughout your investment journey. If you’re new to mutual funds or unsure about which funds to select, a regular plan can offer convenience and professional help.

With a regular SIP you can entrust someone who has better tools to manage your investments wisely. The assistance from a qualified advisor can also help you stay disciplined and make better financial decisions over time.

How the cost difference impacts return

You must be wondering if the cost difference between a regular and direct plan has an impact on your total returns. Over time, the difference in expense ratio between direct and regular plans can have a noticeable impact on your total returns. Even a 0.5% difference can make a significant difference over 10 to 15 years. Since SIPs are typically long-term investment tools, every small saving on expenses can lead to higher compounding benefits.

Let’s explain this with an example. Suppose you invest ₹5,000 every month in a mutual fund SIP investment over 15 years. If the regular plan delivers 12% annual returns and the direct plan offers 12.5% due to lower expenses, the difference in maturity amount could run into lakh.

Choosing what’s suitable for you

The choice between direct and regular plan depends on your comfort with financial planning and the time you’re willing to invest in managing your portfolio.

● Choose a direct plan if you are comfortable researching funds on your own, understand your risk appetite, and can track and manage your portfolio periodically. It gives you cost benefits and greater control over your investments.

● Choose a regular plan if you prefer to rely on expert advice, are just beginning your investment journey, or want help aligning your investments with life goals. The added support can simplify decision-making and help you stay on track.

It’s also possible to start with a regular plan and shift to a direct plan later, as you gain more confidence and understanding of how mutual funds work.

How to compare and track performance

Whether you choose a direct plan or regular plan, it's important to review performance at least once a year. You can do this by checking returns, comparing with fund benchmarks, and ensuring the fund continues to meet your investment goals.

Several tools and platforms provide comparisons between direct and regular funds. You can also make use of a SIP calculator to estimate how your investments might grow over time. This can help you set realistic expectations and choose the suitable SIP route.

Conclusion

Both direct and regular plans serve the same purpose, helping you grow your wealth over time through consistent mutual fund SIP investments. The difference lies in how you choose to invest and the level of support you want along the way. In this scenario, tools like SIP calculator can be of assistance in helping you make an informed decision.