Mutual fund investors may wish to change the way they invest in a scheme for various reasons. An investor may wish to switch from a direct plan to a regular plan or vice versa. However, a mutual fund investor’s wish to change his or her investment method may come at a cost.
Difference Between Regular And Direct Plan
Investors can invest in any active fund of any asset management company (AMC) via both regular and direct plans. When an investor invests via a distributor it is called a regular plan. The second case is where the investor invests directly with the AMC, this is known as a direct plan.
Typically distributors get incentives to promote mutual fund products of an AMC. In return, AMCs pay a commission to their distributor when an investor puts money in their fund and for every year the investor stays invested.
This commission is part of the fee that an AMC charges an investor. This means the regular plan would be available at a higher fee than a direct plan. However, it is important to note that the portfolio and the fund manager for both direct and regular plans generally remain the same.
Given the relatively higher cost, an individual may rethink their choice and wish to switch from a regular plan to a direct plan. While the process of making the switch is simple investors should be mindful about the money they may need to pay to do so.
A shift between two plans is seen as the redemption of the plan and any such shift will be considered as a fresh investment even if it is made in the same fund via the direct plan.
