People investing in Mutual funds can either invest one shot (say Bulk investment) or opt for Systematic Investment (SIP). Whichever option you choose to go with, an understanding on the "distribution mode" explained below can help you to earn significant higher return in the long term.
Mutual funds are sold to investors for investment in two options namely
RIP is often the ONLY mode typically offered by your Intermediary (Bank, Mutual fund Distributors, most Online Financial Portals and Financial startups etc), whereas DIP (Direct Investment Plan) option is something you need to specifically ask for (and demand). Most investors are neither informed or aware of the DIP Option (nor) do the intermediaries share this information with you willingly, unless you specifically ask for it (caveat emptor!).
Direct Investment plans (DIP) were introduced in 2013. If you are a mutual fund investor who has been investing prior to 2013, certainly you will be enrolled in the RIP (Regular Investment Plan) only. If you are an investor who has started investing in MF post 2013 (but did not bother to ask for the Direct plan option (like most investors), because you did not know it existed (or) your intermediary hid it from you), you would most likely been enrolled in RIP option.
Dhanayoga did a quick analysis of what is the % of return that investors stand to lose when they go through the Regular Investment Plan (RIP) vs. Direct Investment Plan (DIP). The results are quite revealing and can help an investor to become wiser and switch to DIP mode from RIP mode.
The figure below displays the incremental return that you can earn if you chose the DIP (Direct Investment Plan) instead of RIP (Regular Investment Plan) mode, for every 1L invested.
Duration 10% Return p.a 15% Return p.a 20% Return p.a 25% Return P.a
5 Years 7,455 8,898 10,542 12,404
10 Years 24,568 36,588 53,576 77,246
15 Years 60,734 1,12,846 2,04,238 3,60,838
20 Years 1,33,481 3,09,422 6,92,166 14,98,489
25 Years 2,75,076 7,95,529 21,99,464 58,34,765
Based on above illustration, For e.g,
If you invested 1 Lakh in a mutual fund that gives an average annual return of 20% p.a and for a period of 15 year period, the additional return that you can earn (if invested in DIP instead of RIP) is INR 2,04,238, which is evidently quite substantial.
So what can you do now?
If you are a new or existing investor planning invest in mutual funds, prefer the Direct Investment option.
Wishing you a very Happy and Prosperous New Year 2017!!
Invest responsibly and smartly!!
Value Driven Wealth
Financial Planning and Investment Advisory services
Sethu V, Founder of Dhanayoga. I'm a Serial Entrepreneur, Management Consultant, Value Investor and Certified Investment Adviser. Connect me at http://linkedin.com/in/venkatsethu