New Investor: Beware of Direct plans

direct plans are not for new investors

“Are direct plans all that beneficial?” was a twitter headline I read this morning and I was stumped.

To me:

This summarises all that is wrong about the understanding about the direct plans of mutual funds.

The popular media and some advisors too has also not been able to hold its horses and has given out interpretations and views that show the direct plans in not so good light. So much so that it has been declared that new investors should not invest in direct plans.

Now, the investor is left utterly confused. In this post, I will try and bring out the facts and help you, the investor, to make the right decisions about direct plans.

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Direct Plans of Mutual Funds – Big Deal?

Direct plan investing in mutual funds

Since Jan 1, 2013, all mutual fund schemes now come in 2 variants – a regular plan and a direct plan. You may ask what is the difference?

A regular plan is one, which you invest in through a mutual fund distributor and for which a distributor earns a commission. The distributor could be your friendly neighbourhood one or an online distributor like FundsIndia, Scripbox, ICICI Direct, etc. Even your banks – HDFC Bank, ICICI Bank or Axis Bank are all distributors. With all them, you can invest in regular plans only.

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