About MF Regular plan

Hi Friends,

Since 2 years ago I have started SIP in Mutual Fund regular plan. Now here I come to know the difference between mutual fund direct and Regular plan. So, why do I unnecessarily give the commission from my profit to the broker? because I don’t know at the time of started SIP in regular plan. So, do I redeem my SIP or continue to invest? Pls suggest. Thanks

You could stop the sip and start a new sip with regular plan. If you think the MF is doing well, why redeem and incur capital gains etc.

Please do note that I am not an expert.

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You dont only give commission from your “profit”. You give commission on the full fund value, irrespective of profit or loss. So it’s bigger than you think!

And most of these “Advisors” are lazy/useless and/or focused only on maximizing their commissions. Some of them don’t even understand or care about market cycles. These days there are enough tools to access MFs yourself.

You can do a transfer to direct plan. Or a STP, depending on tax liabilities.

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but one big advantage of regular mutual fund is you can use it as collateral ( non elss ) , so if you count the actual returns it will be much higher - of course if you use the margin .for normal users who just want to invest direct is much better

There are also direct mutual funds that you can use as collateral.

Right! Broker dont care about investment or guide to new one like me in the market, they gave me to invest in regular plan now I have asked my relationship executive about the same she said that some amt will be deducted as I have regular plan. (Return is good in 2 years)

Hey Pradeep,
If you can answer the following maybe we can help better:
1.) Can you tell the name of your fund (because if there is no exit load after 2 years then I don’t think there should be any deductions)
2.) You want to invest direct MF through Zerodha’s Coin or some other platform ?

Aditya Birla Sun Life Frontline Equity Fund Growth Regular plan

I am sure @neha1101 meant start a new SIP with direct plan.

@Pradeep_Golekar : this is a sensible thing to do. Stop the SIP into the regular funds, and once they are stopped, start a SIP into the corresponding direct variants.

Regular fund commissions are not related to exit load. If @Pradeep_Golekar bought a regular fund, he will be paying some amount as commission every single day that he holds these units. This payment happens as a cut in the daily NAV, so we don’t notice these charges being levied. And as @Vij pointed out, this daily deduction happens irrespective of whether the units are at a profit or not.

Exit loads are an entirely different thing.

The current NAV of the direct variant of this fund is Rs.326.5900 . The current NAV of the regular variant is Rs.303.8000.

This difference is the result of accumulated commissions paid since 01-Jan-2013 (around 8.5 years) which was the date on which the direct variant was launched, as per VRO.


Can I convert from Regular to Direct or need to stop & start to the existing with direct plan?

Stop the regular SIP and start an SIP into the direct variant. As far as I know, there is no notion of converting an SIP from regular to direct.

I understand this part, but @Pradeep_Golekar said, his RM told him that some amount will be deducted. So according to you if the deductions in the form of agent commission is already factored in the NAV of the fund, then why do they need to deduct some amount again ?

I read this as: “When I asked my RM if regular funds have extra charges, she told me that yes, some extra amount is deducted from the NAV because I have a regular fund.”

But I could be wrong about this interpretation, and this conversation could have been about exit loads. Only @Pradeep_Golekar can tell us what it was about.

When Direct plans were first introduced I had followed this approach:

  1. Stop my SIPs in the regular plans.
  2. Start the same SIPs in the Direct Funds
  3. STP from Regular Plan to Direct Plan keeping the Exit Loads & LTGC in mind. That is, if I had a SIP active till last month, I create a STP such that the last STP transactions happens 12 months after the last SIP in the regular Plan so that I cross the 1 year period - both for Exit Load and LTGC - for each SIP transactions.

This last point is important - each SIP is actually a “Purchase” in the MF and will incur Exit Load and LTGC rules accordingly. I designed a “rolling pull out” so that each SIP date was taken care of. By this means I managed not t pay any Exit Load or STGC for my investments in the Regular Plans.

Also, the agent cannot deduct anything from your account. You don’t have to depend on them at all. Just use the Folio Number to start a STP or redemption as the case might be. This can be done directly on the AMC’s web site after eKYC and account creation. And you don’t need the agent’s permission to make changes to your investments - they are your and you have total control over them. The agent does not.

I am not sure why you are considering moving from a regular plan to a direct plan. If it is only about saving a few bucks, just think about the hassle that will come along with a direct plan. I have made the mistake of investing in mutual funds directly but whenever I needed any guidance, it was all on me.

Fortunately, I understood the convenience that a regular plan can get you and so I invested in a few mutual funds with finvasia and have been taking advantage of their analytical tools to evaluate different parameters

I have been investing for a couple of decades now. All my MF units were in regular plans to start with, because (as far as I knew) there was no such thing as direct plans till a few years ago.

I have never ever got anything of value from paying the commissions for regular funds, over the years. Those commissions were an underhanded way of getting money from me without me being aware of it, any which way I think of it.

Once I learned of this difference, I shifted completely to direct plans.

@Pradeep_Golekar : Any analysis you need for help with mutual funds—anything that you can imagine needing—is available for free from various different sources. I currently use Kuvera to keep track of my MF portfolio, and VRO for comparisons and analysis. There are many other completely free options for getting these jobs done, as well; these just happen to be what I have currently settled on. And they don’t cost you a single paisa. Do not pay needless (and sneaky, if you ask me) commission by buying regular funds.

Note that you pay commission to finvasia every single day and on every single regular MF unit that you hold, in the form of commissions which are cut directly before announcing the NAV. And you pay this money irrespective of whether you yourself make a profit or not! And this can amount to a significant sum over the years, as you can see from the NAVs of the regular and direct variants that I quoted for Aditya Birla Sun Life Frontline Equity Fund in another comment above: the absolute percentage difference on the purchase cost over some 8.5 years was around 23% in favour of the direct variant.

@nagmasarin : I am very curious to know what these analytical tools are, which are not free-of-charge elsewhere, and for which you are willing to pay so much. Could you please give a couple of examples of the kind of analysis that you pay finvasia for?