Difference between returns delivered by best performing smallcap fund: Direct vs Regular plan
Mutual fund offers its scheme in two ways – Direct plan and Regular plan. The direct plan is nothing but you buy directly from mutual fund company through their website or by visiting the AMC and thus there is no involvement of any intermediary which leads to a lower expense ratio as compared to regular plans. While regular plans are bought through mutual fund distributors i.e., these plans involve an intermediary who helps an investor in selecting a mutual fund scheme that is apt for him, submitting your KYC and other services for which these distributors receive a commission. This is why the expense ratio of regular plans are higher.
In the last one year, smallcap funds are the second-best performing scheme which delivered 61.28 per cent in last one year after sectoral-technology fund. Within the smallcap category Quant Smallcap Fund is the best performing fund in the last one year. The benchmark of the same fund is the NIFTY Smallcap 250 Total Return Index.
So, let’s have look at actual returns of Quant Small Cap Fund in case of both direct plan as well as a regular plan:
|
Fund name
|
NAV Direct
|
NAV Regular
|
1-Year Return Direct
|
1-Year Return Regular
|
Expense Ratio Direct
|
Expense Ratio Regular
|
Benchmark 1-Year Return
|
|
Quant Small Cap Fund
|
133.97
|
128.55
|
90.33 per cent
|
86.69 per cent
|
0.56 per cent
|
2.61 per cent
|
61.10 per cent
|
Source: Association of Mutual Funds in India (AMFI)
Suppose an individual invested Rs 1 lakh lump sum in December 2020, then what will be the worth of investment as of now?
The above returns are expense ratio adjusted returns, as we can see the difference in returns of both the plans. Regular plans deliver lesser returns as compared to direct plans due to the higher expense ratio. There is approximately Rs 3,640 difference in one year, which will increase over the period of time.
Let’s have a look at the same.
An individual invests the same lump sum amount as above Rs 1 lakh for five years then what will be the worth of investment as of now:
The five-year return of the same fund is – 22.26 per cent – Direct Plan, and 21.46 per cent – Regular Plan. (Source: AMFI)
So, in this case the difference between both plan amounts to ₹8,820. Therefore, an investor should analyze oneself and the fund they are willing to invest in order to receive optimal benefits. An investor aiming for higher returns and he is well aware about the fund risk appetite, investment horizon then he can invest through direct plan. Investor should invest in funds by taking expense ratio into consideration.