Direct plans of mutual funds: 10-year scorecard

The direct plans of mutual fund schemes completed 10 years in January. The direct plans were supposed to enhance returns and help investors to invest directly in mutual funds without the help of an intermediary. Since mutual funds do not pay commissions or marketing expenses on direct plans, they have lower expenses. A lower expense ratio over a long period will help investors earn extra returns. As these schemes completed 10 years, it’s a good time to see whether direct plans indeed offered extra returns to investors.

The happy news is that indeed direct plans of several major categories managed to offer 1-2% more than their regular counterparts. (See table) ETMutualFunds considered all equity scheme categories – large cap, large & mid cap, small cap,ELSS, mid cap funds, value & contra funds, multi cap funds, flexi cap funds, focused funds, aggressive hybrid funds, arbitrage funds, balanced advantage & dynamic asset allocation funds,multi asset allocation funds, equity savings, sectoral and thematic funds for the study. We calculated CAGR returns offered by these categories for from January 2, 2013 to January 1, 2023.

The small cap category witnessed the highest difference between the returns of regular and direct options. The direct plans of the category offered 19.97% returns in the 10-year horizon, compared to the regular schemes that offered 18.48% returns during the same period. The difference in the returns offered by regular schemes and direct schemes was 1.49%, the highest among the equity and equity-oriented schemes.

The direct schemes of the mid cap category offered 18.09% in the 10-year period, whereas the regular schemes offered 16.92% returns. The difference in the returns was around 1.17%.

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There are around 26 categories of equity and equity-oriented schemes. Here’s how much the investors gained while investing in direct schemes over regular schemes. (See table)

Categories	Average Direct returns	Average Regular returns	% difference in returns
Equity : Small cap Fund	19.97%	18.48%	1.49%
Equity : Mid Cap Fund	18.09%	16.92%	1.17%
Thematic : PSU	10.20%	9.07%	1.13%
Thematic : Consumption	15.27%	14.17%	1.10%
Sectoral: Pharma & Health Care	14.76%	13.66%	1.10%
Equity : Large Cap Fund	13.57%	12.49%	1.08%
Sectoral : Banks & Financial Services	13.04%	11.97%	1.07%
Hybrid : Equity Savings	8.57%	7.55%	1.02%
Hybrid : Balanced Advantage & Dynamic Asset Allocation	11.58%	10.57%	1.01%
Equity : Contra & value	15.65%	14.65%	1.00%
Thematic : MNC	15.07%	14.09%	0.98%
Sectoral: Technology	20.36%	19.38%	0.98%
Thematic : Energy & Power	16.51%	15.60%	0.91%
Equity : Global/ International funds	7.25%	6.37%	0.88%
Equity : Large & Mid Cap	15.49%	14.62%	0.87%
Equity : Focused Fund	14.48%	13.62%	0.86%
Thematic : ESG	13.82%	12.97%	0.85%
Thematic Fund	14.68%	13.87%	0.81%
Sectoral: Infrastructure	13.65%	12.89%	0.76%
Hybrid : Aggressive Hybrid	13.16%	12.40%	0.76%
Equity : Equity Linked Savings Scheme	14.65%	13.90%	0.75%
Equity : Dividend Yield	12.91%	12.18%	0.73%
Hybrid : Arbitrage Fund	6.62%	6.07%	0.55%
Hybrid : Multi Asset Allocation	11.16%	10.70%	0.46%
Equity : Flexi Cap Fund	14.04%	13.63%	0.41%
Equity : Multi Cap Fund	15.53%	15.41%	0.12%

Source: ACE MF, Returns for January 2 2013 to January 1 2023The category that had the marginal difference in the average returns of direct plans and regular plans was multi cap funds. The direct schemes of the category offered 15.53% returns and the regular schemes offered 15.41% returns. The difference in the returns was merely 0.12%.Among the thematic funds, the theme that had highest difference in direct and regular returns was PSU theme based schemes. The direct schemes of the theme offered 10.20%, whereas the regular schemes offered 9.07%. The difference in the returns was around 1.13%.

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Among the sectoral funds, the sector that witnessed the highest difference in the average return of direct schemes and regular schemes was pharma & healthcare sector. The direct schemes of the sector offered 14.76% returns whereas the regular schemes offered 13.66% returns. The difference in the returns was 1.10%.

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