How costly are regular mutual funds compared to direct plans?

[Jason_Castelino]

@Sanyam_Shah

As if Direct Plan NAV is 1, then Regular Plan NAV is always 0.98 or something.

I will take a little higher difference to make my calculation easier.

At the time of buying let the NAV be 100 for direct plan and regular be 90.
Now at the time of selling if NAV of direct is at 10 percent higher I.e. 110, NAV of regular won’t be 99(10 percent higher) It will be slightly lesser than 99. Let’s say 98.5. So even if you get more units at the time of purchase of regular plan, it will still not beat the returns of direct plan.

I hope it’s clear. Still if it isn’t take some capital, divide and see how many units you get for the NAV I have quoted earlier.

[ShubhS9]

@Sanyam_Shah

I can not understand how is it possible?

As if Direct Plan NAV is 1, then Regular Plan NAV is always 0.98 or something.

If my buying cost is also low, how can there be a gap in returns, as NAV is already discounted.

Please someone explain,

You can watch this Varsity video, it’ll clear all your doubts:

How do mutual funds earn money?

So far in the series, we’ve discussed why you should invest, why mutual funds are ideal for long-term investing, and the various types of mutual funds. If you are investing in a mutual fund, you need to pay the asset management company (AMC) to manage your money, but you don’t pay anything every month from your pocket. You must be wondering if mutual funds are free. They aren’t. Every mutual fund scheme has a fee, and this is called the total expense ratio (TER). This is the fee charged for mana…

[bhushan10]

when do the expense ratio deducted?

1. at the time of purchase MF (only one time)
2. everyday after purchase of MF.

[4autotrading]

In the long run, the regular mutual funds proves out to be quite costly in comparison to the direct plans. Both of these articles gives very good information on this topic, you may have a look -

The Dirty Little Mutual Fund Secret That Leaves You Poorer

Even 1% Difference Can Make A Huge Difference To Your Investments

So, unless there is a very special reason, it is always advisable to go with the Direct Plans, whenever possible.

Regards

[ShubhS9]

@bhushan10

when do the expense ratio deducted?

1. at the time of purchase MF (only one time)
2. everyday after purchase of MF.

Expense Ratio is deducted on daily basis as tiny fractions of annual value. So everyday when AMC declares NAV, Expense Ratio is already deducted.

You can watch this video to learn more:

Understanding Net Asset Value (NAV)