Imagine you’re at a cricket match. You have two options to buy tickets: directly from the official ticket counter or through a broker. The broker adds his fee on top of the ticket’s original price. Buying directly, while possibly requiring a bit more effort, saves you that extra fee. This situation parallels the difference between Direct and Regular Mutual Funds.
In a Direct plan, you invest directly with the mutual fund company. There’s no middleman involved. As a result, the expense ratio is lower. On the other hand, a Regular plan involves an intermediary (broker or advisor) who earns a commission from the mutual fund company, which raises the expense ratio.
To illustrate the impact of this difference, let’s consider a SIP of Rs 10,000 for 20 years in a mutual fund. Assume that both the Direct and Regular plans give a return of 12%, but the expense ratio is 1% for the Direct plan and 2% for the Regular plan.
In the Direct plan, the final corpus would be approximately Rs 1.75 crores. In contrast, in the Regular plan, the corpus would be around Rs 1.52 crores. That’s a difference of about Rs 23 lakhs, just due to a 1% difference in expense ratio!
As the famous investor, Jack Bogle said, “In investing, you get what you don’t pay for.” The seemingly small difference in expense ratios can have a significant impact on your wealth over the long term.
If you’re wondering how to navigate these complexities, don’t worry. At Jama Wealth, we aim to simplify your investment journey. We guide our clients towards direct plans to save those extra costs and work tirelessly to make your wealth grow. If you want to invest in regular plan then as corporate RIAs, we can help with that too by ensuring that selection is not influenced by any bias.
