Is NAV different for Regular and Direct plans of the same mutual fund scheme?
The answer is Yes, it is.
And the Direct plan NAV will always be higher than Regular plan NAV.
It has to be. And the reason is that the Direct plans are offered directly to investors by the fund houses (AMCs) whereas the regular plans are bought by investors through intermediaries or distributors. So the expenses/commissions paid to the intermediaries or distributors in between lead to higher expenses that result in lower NAV for regular plans.
So now you know why NAV of direct plan is higher than regular plan? And that is also the reason why NAV of regular fund is lower than direct fund?
I suggest you also read the detailed note I wrote a while back about why returns from Direct plans are always higher than Regular plans.
For this reason, if you ever do an analysis of the Direct vs regular mutual fund return Calculator (in 2022), you will find that direct plan returns are always higher. And so will be your MF portfolio value if you invest in them.
Let me take a simple example to show this.
Let’s choose a popular Largecap fund (randomly) – Axis Bluechip Fund. The difference in NAV is as follows:
- Axis Bluechip Fund (Regular Plan) – Rs 45.60
- Axis Bluechip Fund (Direct Plan) – Rs 50.75
Obviously, the NAV of the direct plan is higher than that of the Regular Plan.
Now Direct Plans have been in existence only since 2013.
So let’s say if you started Rs 10,000 SIP in both regular and direct plans of this fund and did it for the last 7 years, then how will your portfolio value differ?
Or let’s say if you invested Rs 1 lakh in lumpsum at the start, then how will your portfolio value differ?
Here is a comparison from Valuereseachonline:
First the REGULAR plan –
Then the DIRECT plan –
As you can see, the difference isn’t very small. And that is inspite of a small SIP amount here (Rs 10,000). If your SIP amount had been larger, say Rs 50,000 SIP or if you have a bigger Rs 1 lakh monthly SIP and you were investing for a very long time like 15-20 years, then the portfolio difference over the years will be every more.
This is very important to understand and will become clear with the next example.
Let’s now look at the NAVs of a fund to see how NAV changes over the years for both direct and regular plans.
I chose Axis Bluechip Fund as an example (just a random selection and not a recommendation). As you can see below, the gap between the NAV of Direct Plan and Regular plans is increasing every year.
And since direct plans will give higher returns than regular plans each and every year, this gap will also continue to increase further with each passing year.
It is, for this reason, it is said that Direct plans are much better than Regular Plans if you know how to pick the right funds yourself
If you do s similar analysis of Direct vs Regular mutual fund returns for the funds that you already have, you will see the same trend. Over the years, staying invested in regular funds means that you are losing out on extra returns that are available to direct plan investors.
There are a few people feel who get confused and think that since direct plan NAV is higher, it is more expensive than regular plans.
But this is a wrong way of thinking and infect, the opposite is true.
No doubt, the NAV of direct plans is and will always be higher than regular plans. But that is not because it’s expensive but because direct plans have a lower expense ratio which allows its NAV to grow faster. Hence, NAVs of direct plans are high and will continue to grow faster than the regular plans. You will get fewer units when you buy direct plans. But it comes with a faster-growing NAV. And this will give you better returns and grow your portfolio faster.
So remember that Direct plans will always outperform regular plans. And despite higher NAV, the Direct plans will always give better returns than regular plans of the same funds and schemes.
If you have a portfolio full of regular plans and are planning to switch to direct plans, then be careful though. This transition will result in some LTCG and STCG tax payouts due to the selling of regular plans. So if you can do it on your own, then good for you. Else, use this opportunity to clean up your portfolio and have a proper financial plan made for yourself. Talk to a SEBI-registered Investment Advisor (RIA) for this