I am new to investing and want to opt for a direct plan of mutual funds rather than taking a regular plan to save broker commissions. Is it wise to do so? What else should I keep in mind when opting for a direct plan?
—Mahesh Kapoor
Direct plans have lower expense ratios compared to regular plans of the same fund. This difference in expense ratios can indeed add up substantially when investments are made for the long term. However, the absence of an adviser to guide you through the investment choices could also have a negative effect in terms of your portfolio performance.
People who choose direct plans should satisfy three criteria. One, they should have a good grasp of the arithmetics of investing (some basic understanding of compounding and the ability to plan for financial goals). Two, an understanding of financial products and how to sift and sort the good ones from the mediocre ones. Three, the discipline to do this over the long term with an understanding of self and the markets’ behaviours.
