Direct vs Regular Mutual Fund calculation: Even 1.25% change can make you lose crores – Here’s how

financialexpress.com:

Mutual Fund Direct vs Regular SIP calculation: How much difference can a 1.25% change in the annualised returns of a mutual fund scheme make? Well, in the short term, the impact of a 1.25% difference in annualised returns may not seem much, but in the long term, it can be very big, going up to lakhs or even crores or rupees.

Let’s understand this with the example of a top-performing mutual fund scheme – Nippon India Small Cap Fund.

In the last 10 years, the direct plan of this scheme has given 31.46% annualised returns while the regular plan has given 30.21% returns, as per data on the website of the Association of Mutual Funds in India (AMFI) tracked till August 31, 2023. The difference between the annualised returns of direct and regular plans of this scheme is 1.25%.

Now, suppose an investor started a Rs 10,000 monthly SIP in this scheme 10 years back. The SIP calculator shows that investing this amount per month in the direct plan of this scheme would have resulted in a total corpus of around Rs 83.5 lakh by 31st August 2023.

However, investing the same amount per month in the regular plan would have resulted in a corpus of approx Rs 76.4 lakh, which is around 7 lakh less than the corpus of the direct plan.

The difference between direct and regular plan returns grows larger with time.

For example, let’s assume that this fund gives similar returns for 20 years and the investor continues his SIP for this duration.

At 31.46% annualised returns from the direct plan, the investor would be able to accumulate about Rs 19.5 crore in 20 years with a monthly SIP of Rs 10,000. However, the regular plan would help create a corpus of just around Rs 15.9 crore in 10 years at 30.21% annualised returns, which is Rs 3.6 crore less