I want to start investing in mutual funds and am confused between direct and regular plans. I was told that direct plans will earn me better returns. What should I do?
Raghuram Mohan, Bengaluru
You need to understand that direct plans post better returns compared to regular plans because direct plans have a lower expense ratio, which automatically results in returns from them better than those from the regular plans of the same fund scheme. Although the difference in expense ratio is less, over time this difference balloons and is quite steep.
On investing through direct plans over regular plans, you should consider investing in direct plans cautiously.
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When investing in direct plans you are expected to know everything about the fund you are investing in such as the risks involved, objective of the fund and other factors that impact its performance. If you are planning to invest directly, you are expected to be well versed with investing in mutual funds. If you are a first time investor, you would be better off investing in regular plans by seeking the assistance of an advisor or agent who could explain the working of the fund to you.
