Mutual Fund SIP Report: Direct Plan vs Regular Plan (2020)

A look at how a SIP and lump sum investment in the regular plan and direct plan of the same fund have performed over the last seven years

Published: March 3, 2020 at 11:58 am

Last Updated on December 29, 2021 at 5:23 pm

Direct plans in which no commissions are removed daily from the NAV along with expenses (prior to publication) were introduced on 1st Jan 2013. This is how a seven-year SIP and a seven-year lump sum in the direct plan and regular plan of the same mutual fund have fared from 1st Jan 2013 to Feb 28th 2020. Please share this article with investors who are still holding regular plans.

It must be made clear to the reader that the primary reason to shift from regular plans to direct plans is to avoid conflict of interest. For the DIY investor, the lower cost over the long term is a no-brainer.

Distributors have been trying all sorts of tricks to prevent investors from redeeming from regulars plans. Some claim that since the direct plan is higher it will result in lower no of units purchased. This myth has been busted before (so will this data): Direct Mutual Fund NAV is higher so Investors will get fewer units: Is this bad?

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Another misinformation used to prevent exit is, “SEBI has said direct plans are only for knowledgeable investors”. This is similar to how insurance agents and employees try to dissuade policy surrenders. I am fairly sure freefincal readers will have such colourful stories to share. Please do in the comments section below.

Investors harassed by distributors should complain to SEBI via their SCORES portal. Note: investors need not inform their distributors before switching out. AMC staff would say this to stop you, but this is wrong.

Those who want assistance may pay a flat fee (not a fee linked to amount invested)) to a SEBI Registered fee-only Investment Advisor. Note a fee-only financial planning is a holistic service including goal-planning, tax-planning, insurance (life/health) and estate planning (will creation, trust creation etc). So please do not compare “fees” of a fee-only with a distributor.  It makes even lesser sense to compare the fees of a fee-only planner and a fee-based (fees + commissions).

This report is for those still investing in regular plans. They can pull out some money from regular funds before March 31st (up to one lakh capital gains overall is tax-free for equity, equity mutual funds). Another shift can be made be in April 2020.

For this study, we shall consider 106 large cap, large and midcap, multicap, midcap and smallcap funds in existence on or before 1st Jan 2013. Return (XIRR) from a Rs. 1000 monthly SIP from 1st Jan 2013 is considered.

The difference in XIRR of a SIP started on 1st Jan 2013 in a direct plan and regular plan is shown below. The horizontal axis is only a serial number. Note that the XIRR has not been arranged in ascending or descending order.

Extra return (%) of a direct plan SIP over a regular plan SIP from 1st Jan 2013
Extra return (%) of a direct plan SIP over a regular plan SIP from 1st Jan 2013

The difference in value as on Feb 29th 2020 ranges from 138 to 11,000 for a monthly Rs. 1000 investment. If the AMCs had not tinkered with direct plan expense ratios frequently, the difference could have been significantly more!
See for example: 48% increase in expense ratio of Birla Reg Savings Fund! Time for SEBI to act?

Difference in current value of a direct plan SIP and regular plan SIP started on 1st Jan 2013
Difference in current value of a direct plan SIP and regular plan SIP started on 1st Jan 2013

The highest difference in XIRR (top 25)

Fund NameXIRR Difference %
Essel Large Cap Equity Fund1.56
Principal Emerging Bluechip Fund1.26
PGIM India Large Cap Fund1.56
Sahara Power & Natural Resources Fund1.61
IDFC Core Equity Fund1.58
Edelweiss Mid Cap Fund1.35
Mirae Asset Emerging Bluechip1.13
Axis Bluechip Fund1.38
Nippon India Small Cap Fund1.31
Tata Large & Mid Cap Fund1.56
Sahara Midcap Fund-Auto Payout1.44
Indiabulls Blue Chip Fund1.78
Kotak Small Cap Fund1.60
BNP Paribas Multi Cap Fund1.77
Axis Midcap Fund1.46
BNP Paribas Mid Cap Fund1.71
Canara Rob Emerg Equities Fund1.40
Invesco India Largecap Fund1.86
Sahara Growth Fund2.00
Kotak Emerging Equity Fund1.54
Invesco India Growth Opp Fund1.73
Invesco India Multicap Fund1.85
Sahara R.E.A.L Fund1.92
SBI Small Cap Fund1.53
Invesco India Midcap Fund2.01

The lowest difference in XIRR (bottom 25)

Fund NameXIRR Difference %
Quant Mid Cap Fund0.43
Quant Small Cap Fund0.12
HDFC Growth Opp Fund0.16
Quant Active Fund0.21
Quant Large & Mid Cap Fund0.19
Taurus Starshare (Multi Cap) Fund0.50
UTI Core Equity Fund0.56
Edelweiss Large Cap Fund0.96
Sahara Wealth Plus Fund-Fixed Pricing0.60
Sundaram Large and Mid Cap Fund0.99
UTI Equity Fund0.54
SBI Magnum Multicap Fund1.07
Nippon India Vision Fund0.72
Taurus Discovery (Midcap) Fund0.58
Sahara Star Value Fund0.65
Taurus Largecap Equity Fund0.82
HDFC Top 100 Fund0.76
DSP Top 100 Equity Fund0.75
Union Multi Cap Fund0.78
Baroda Mid-cap Fund0.90
LIC MF Multi Cap Fund0.82
Baroda Large Cap Fund0.80
SBI Large & Midcap Fund0.70
L&T Equity Fund0.81
Sundaram Small Cap Fund0.81

Returns for a lump sum invested on 1st Jan 2013 (CAGR) versus the SIP XIRR is plotted below. The near-linear trend is hardly surprising as commissions for the regular plan are removed each business day.

Difference in SIP returns vs difference in lump sum (CAGR) returns between direct plans and regular plans
The difference in SIP returns vs difference in a lump sum (CAGR) returns between direct plans and regular plans

This article has merely quantified the obvious. Time to wake up, smell the coffee and redeem from regular funds.

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