Should you start a mutual fund SIP in a regular plan or direct plan?

Investors who are unhappy with their existing investments should re-evaluate their investment portfolio. Financial planning is essential for anyone who wants to understand which investment scheme is feasible for their income needs. With financial planning, one can determine their life’s urgent as well as long term financial goals, thus allowing the investor to get a clear perspective on how to diversify their portfolio. Investing is essential for anyone who wishes to create wealth over the long term. Investors who carry some risk appetite and are willing to take risk with the hope of earning decent capital appreciation in the long run, you can consider investing in mutual funds.

A mutual fund is a pool of professionally managed funds that invest in a diversified portfolio of securities. Mutual fund houses collect money from investors and invest this pool of funds to achieve a common investment objective. A mutual fund might invest across various money market instruments and asset classes. It all depends on the nature of the scheme, the risk profile it carries and its underlying benchmark. It is the duty of the fund manager to help the mutual fund scheme outperform by executing an established investment strategy. Those who are new to mutual funds or investing generally ponder over when would be the right time to invest in mutual funds. Any time could be the right time to invest in mutual funds if you start a monthly SIP in mutual funds. A Systematic investment Plan is a new and convenient way of investing in mutual funds. You can invest in mutual funds via SIP to target your long term goals.

What is a Systematic Investment Plan?
Those who start a monthly SIP in mutual funds, they can invest small fixed amounts at regular intervals and gradually build the desired corpus. For those who are new to investing, a Systematic Investment Plan is a method for investing in mutual funds. The traditional way to invest in mutual funds is by making a one time lump sum investment. On the other hand, starting a monthly SIP in mutual funds can inculcate discipline of regular investing. All an investor has to do is become KYC compliant, complete all the pre-investment formalities with their savings bank and decide how much they wish to invest in a mutual fund scheme of their choice. Once you are a KYC compliant individual, every month on a fixed date, a predetermined amount will be debited from the investor’s savings account and electronically transferred to the fund. Investors are free to continue investing in mutual funds via SIP till their investment objective is achieved.

What is a direct plan and a regular plan in mutual funds?
A direct mutual fund plan is one which can be purchased directly from the fund house owning that particular scheme. Investors can buy a direct mutual fund scheme either by manually visiting a fund house or by visiting the fund house’s website online. An investor may not need to approach an agent or a broker to invest in a direct mutual fund scheme. And since there is no third party involvement, the expense ratio of owning the fund is relatively low.

On the other hand, a regular mutual fund scheme can be purchased from a third party aggregator or a mutual fund agent or a broker. One does not need to visit a fund house to purchase a mutual fund scheme. They can buy that from a broker or a mutual fund agent. However, since there is a third party involved in selling the scheme, the fund house has to pay a fee to the aggregator. This fee is recovered by levying a high expense ratio to the fund owner.

SIP investments go well with direct plan or regular plan?
Irrespective of whether you choose the direct plan or if you go with the regular plan, you need to understand the importance of starting a SIP in mutual funds. You can target your life’s long term financial goals by starting a monthly SIP. However, it is essential to have a long term investment horizon while investing in mutual funds via SIP. However, since the expense ratio of a regular scheme is on the higher end, the capital appreciation which you might earn at the end of your investment journey, might get affected. A high expense ratio may seem miniscule at the time of investment, but it might take away a major chunk of the wealth that you will accumulate at the end of your investment journey. SIP investing is also known to allow investors to benefit from the power of compounding and rupee cost averaging.

If you are unsure which plan you must start an SIP in, please feel free to consult a financial advisor or mutual fund expert before investing.
Mutual Fund Investments are subject to market risks, read all scheme related documents carefully.