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Mutual Fund investors have the option to invest either in the direct or regular plans of a scheme. However, there is a difference between the returns of both plans.
Calculation shows that even a small change between returns of direct and regular plans can make a huge difference in your final corpus in the long run.
Generally, there is a difference of 1-2% between the annualised returns of direct and regular plans of mutual fund schemes. Let's understand this with an example.
In 10 years, a top-performing scheme has given 31.46% annualised returns under its direct plan and 30.21% under its regular plan. The difference between the two is 1.25%.
A monthly SIP of Rs 10,000 in the direct plan of this scheme would have given Rs 83.5 lakh in 10 years. However, the regular plan would have given just around Rs 76.4 lakh in this duration.
The difference between direct and regular plan returns grows larger with time.
For example, let's assume this fund gives similar returns for 20 years.
Calculation shows that a monthly SIP of Rs 10,000 at 31.46% annualised returns under the direct plan would give Rs 19.5 crore in 20 years. But the regular plan would give just Rs 15.9 crore.
With higher returns, the direct plan of a fund can help an investor realise his financial goals faster than the regular plan.
However, it is also important to choose the right fund. Going only by the past returns of a fund may lead to losses.
Disclaimer: This story is for informational purposes only. Mutual Fund investments are subject to market risks. Please consult a SEBI-registered advisor before investing.