Direct mutual fund plans were introduced from Jan 1st 2013. In this article, we list the return difference between an 8-year SIP in a direct plan and a regular plan mutual fund. Scared that it would disrupt sales, SEBI has still not renamed “regular plans” for what they really are: “commission plans” – nothing “regular” about them.
However, thanks to advances in technology, direct plan AUM has slowly but steadily increased – close to 40% of total industry AUM if we look at the Average Assets under Management (AAUM) for the quarter of October – December 2020 reported at AMFI (excluding ETFs which no regular/direct plans and domestic fund of funds). Hence the “direct AUM is not sticky” cries. About 30% of the total direct AUM is being held in liquid and overnight funds (typically institutional money).
For those who do not know how regular plans operate: every day before the NAV is declared, mutual funds deduct their expenses and sales guy commissions from the regular plan AUM. In the direct plan, there is no commission involved only expenses.
The next time a sales guy proudly declares that “they paid by AMCs for the service they provide to investors”, please remind them the AMCs are merely removing the commissions from the current market value of the investments.
While it is obvious that regular plans would cost most and return less, the real reason for shunning regular plans is the associated conflict of interest. If a person employed by you is being paid by someone else – from your money and you have no control over the terms of the payment, the arrangement is, to put it lightly, far from ideal.
The choice before the investor is quite simple:
- DIY. Mutual fund investing is not rocket science although many investors aspire to be rocket scientists.
- Get unbiased advice from a SEBI registered fee-only advisor
Direct vs Regular Plan Mutual Funds: 8-year SIP return difference
We considered 266 schemes for this study. The full dataset can be obtained on request. We present some results here.
The highest difference in returns and investment value was found for HDFC Hybrid Equity Fund. However, the NAV currently available is only the adjusted NAV which accounts for the scheme merger in 2018. The numbers (see below) are significantly higher than the rest of the pack and therefore not considered. The numbers for its twin HDFC Balanced Advantage look better though.
The table below shows data the “top” 15 funds. If an Rs. 1000 per month SIP was started on the 1st of Jan 2013, the XIRR of the direct plan investment would be 1.93% higher than that of the regular plan investment (see image below for return differences).
This may not sound like much but the value of the direct plan investment would be (16.37 x 1000) times higher than the regular plan investment for Invesco Midcap fund (1st entry below). That is 16.37 months of investment is lost in commissions.
| Scheme Name | Amount in terms of SIP instalments lost to commissions |
| Invesco India Midcap Fund | 16.37 |
| Invesco India Financial Services Fund | 13.70 |
| Invesco India Contra Fund | 13.54 |
| Invesco India Multicap Fund | 13.39 |
| Invesco India Infrastructure Fund | 13.19 |
| Axis Midcap Fund | 13.04 |
| BNP Paribas Mid Cap Fund | 12.93 |
| Canara Rob Emerg Equities Fund | 12.92 |
| Invesco India Growth Opp Fund | 12.62 |
| Invesco India Largecap Fund | 12.19 |
| Edelweiss Mid Cap Fund | 12.01 |
| BNP Paribas Multi Cap Fund | 11.89 |
| BOI AXA Tax Advantage Fund | 11.72 |
| Axis Focused 25 Fund | 11.71 |
| Indiabulls Blue Chip Fund | 11.62 |
The image below includes the XIRR return differences and the actual value as well.
The data is self-explanatory and the choice obvious.
We now publish both equity fund and debt fund (+ hybrid fund) screeners each month!
Use our Robo-advisory Excel Template for a start-to-finish financial plan! Now with a new demo video! ⇐ More than 415 investors and advisors use this!
Unlock the secrets of successful financial advisors and entrepreneurs with our new course!
My new book for kids: “Chinchu gets a superpower!” is now available!
Must-read book even for adults! This is something that every parent should teach their kids right from their young age. The importance of money management and decision making based on their wants and needs. Very nicely written in simple terms. - Arun.Buy the book: Chinchu gets a superpower for your child!
How to profit from content writing: Our new ebook for those interested in getting side income via content writing. It is available at a 50% discount for Rs. 500 only!
Join our courses in exclusive Facebook Groups!
- 550+ members are now part of our new course: How to get people to pay for your skills! (watch 1st lecture for free). Learn how to get people to pay for your skills! Whether you are a professional or small business owner who wants more clients via online visibility or a salaried person wanting a side income or passive income, we will show how to achieve by showcasing your skills and building a community that trusts you and pays you!
- Goal-based portfolio management! Join 2220+ members and get clarity on how to plan for your goals and achieve the necessary corpus no matter what the market condition is!! Watch the first lecture for free! One-time payment of Rs. 3000 only. No recurring fees! Life-long access to videos (10+ hours content) in an exclusive Facebook Group! Reduce fear, uncertainty and doubt while investing! Learn how to plan for your goals before and after retirement with confidence.
Want to check if the market is overvalued or undervalued? Use our market valuation tool (will work with any index!), or you buy the new Tactical Buy/Sell timing tool!
We publish mutual fund screeners and momentum, low volatility stock screeners .every month.
About the Author
M. Pattabiraman(PhD) is the founder, managing editor and primary author of freefincal. He is an associate professor at the Indian Institute of Technology, Madras. since Aug 2006. Connect with him via Twitter or Linkedin Pattabiraman has co-authored two print-books, You can be rich too with goal-based investing (CNBC TV18) and Gamechanger and seven other free e-books on various money management topics. He is a patron and co-founder of “Fee-only India,” an organisation to promote unbiased, commission-free investment advice. He conducts free money management sessions for corporates and associations based on money management. Previous engagements include World Bank, RBI, BHEL, Asian Paints, Cognizant, Madras Atomic Power Station, Honeywell, Tamil Nadu Investors Association, IIST Alumni Association. For speaking engagements, write to pattu [at] freefincal [dot] comAbout freefincal & its content policy Freefincal is a News Media Organization dedicated to providing original analysis, reports, reviews and insights on developments in mutual funds, stocks, investing, retirement and personal finance. We do so without conflict of interest and bias. Follow us on Google News. Freefincal serves more than one million readers a year (2.5 million page views) with articles based only on factual information and detailed analysis by its authors. All statements made will be verified from credible and knowledgeable sources before publication. Freefincal does not publish any paid articles, promotions, PR, satire or opinions without data. All opinions presented will only be inferences backed by verifiable, reproducible evidence/data. Contact information: letters {at} freefincal {dot} com (sponsored posts or paid collaborations will not be entertained)
Connect with us on social media
- Twitter @freefincal
- Subscribe to our Youtube Videos
- Posts feed via Feedburner.
Our publications
You Can Be Rich Too with Goal-Based Investing
Published by CNBC TV18, this book is meant to help you ask the right questions, seek the correct answers, and since it comes with nine online calculators, you can also create custom solutions for your lifestyle! Get it now. It is also available in Kindle format.Gamechanger: Forget Startups, Join Corporate & Still Live the Rich Life You Want
This book is meant for young earners to get their basics right from day one! It will also help you travel to exotic places at a low cost! Get it or gift it to a young earner.Your Ultimate Guide to Travel
This is an in-depth dive analysis into vacation planning, finding cheap flights, budget accommodation, what to do when travelling, how travelling slowly is better financially and psychologically with links to the web pages and hand-holding at every step. Get the pdf for Rs 199 (instant download)Free android apps
- All calculators from our book, “You can be Rich Too” are now available on Google Play!
- Install the Financial Freedom App! (Google Play Store)
- Install Freefincal Retirement Planner App! (Google Play Store)
- Find out if you have enough to say "goodbye" to your employer (Google Play Store)