1. Net Asset Value (NAV) = (Market Fair Value (MFV) of scheme investments + receivables + accrued income + other assets - accrued expenses – payables - other liabilities) / no. of outstanding units.
2. All above components are calculated on a daily basis to arrive at daily NAV.
3. Out of these, "accrued expenses", "payables" and "other liabilities" form total expense ratio (TER).
4. From 1st Jan 2013, Sebi asked AMCs to create Direct plans in which commission that would otherwise have been paid to intermediaries now goes to fund's NAV, and thus to MF investors.
5. A Direct plan, therefore, has a lower TER as it doesn't include payments to distributors through commissions made in a Regular plan, hence its NAV remains higher on a daily basis, which keeps getting compounded always, and gets reflected in CAGR% over the years.
6. Degree of outperformance is higher among equity funds than debt funds, and is a function of brokerage, which varies across fund categories.
7. Liquid and debt funds offer less commission compared with equity funds, hence difference among direct and regular plans is insignificant.
8. Also, it is not compulsory for AMCs to pay same commission on all schemes within a category, e.g. tax-saving funds have higher commission structure.
9. Direct plans benefit from reward of lower expenses resulting in higher returns for investors, which over a long period, does tend to accumulate.
10. Decision for choosing Direct plans depends entirely on services intermediaries offer you, and whether you can substitute them yourself.
11. There are numerous expenses like operating expenses, management expenses, distribution and marketing expenses, transfer agent fees, custodian fees, audit fees, etc. which are all included in NAV calculation.
12. However, difference between Regular and Direct plans is in distribution and marketing expenses, all else remaining same.
13. While one would like to maximize returns through Direct option, one should individually decide whether this difference is significant to forego intermediary services for full tenure.
14. Direct plans benefit when one is sure that intermediary offers no extra value, like investment advice and help worth extra commission.
15. One also needs to be cautious of switching costs and capital gains, and confidence of their Do-It-Yourself (DIY) abilities.
16. Switching to Direct equity plans works best if they are planning to stay invested for long-term (like in your case) and after minimizing capital gains taxes while switching.
17. Switching to direct plans in non-equity funds isn't worthwhile, as tax-incidence is very high compared to benefit, and starting fresh direct plans is better.
18. Direct plans, to some extent, are a compromise on convenience as one would need to spend time and effort in selection, transaction and review of funds on DIY basis.
19. But for savvy investors, who can spend time and energy and manage these on their own, Direct plans are better in the long run.
20. 1 crore corpus invested @10% CAGR gives monthly SWP amount of 85,000 for 30 years in a Direct plan, but becomes 78,000 in a Regular plan @9% CAGR, due to NAV difference.
2. All above components are calculated on a daily basis to arrive at daily NAV.
3. Out of these, "accrued expenses", "payables" and "other liabilities" form total expense ratio (TER).
4. From 1st Jan 2013, Sebi asked AMCs to create Direct plans in which commission that would otherwise have been paid to intermediaries now goes to fund's NAV, and thus to MF investors.
5. A Direct plan, therefore, has a lower TER as it doesn't include payments to distributors through commissions made in a Regular plan, hence its NAV remains higher on a daily basis, which keeps getting compounded always, and gets reflected in CAGR% over the years.
6. Degree of outperformance is higher among equity funds than debt funds, and is a function of brokerage, which varies across fund categories.
7. Liquid and debt funds offer less commission compared with equity funds, hence difference among direct and regular plans is insignificant.
8. Also, it is not compulsory for AMCs to pay same commission on all schemes within a category, e.g. tax-saving funds have higher commission structure.
9. Direct plans benefit from reward of lower expenses resulting in higher returns for investors, which over a long period, does tend to accumulate.
10. Decision for choosing Direct plans depends entirely on services intermediaries offer you, and whether you can substitute them yourself.
11. There are numerous expenses like operating expenses, management expenses, distribution and marketing expenses, transfer agent fees, custodian fees, audit fees, etc. which are all included in NAV calculation.
12. However, difference between Regular and Direct plans is in distribution and marketing expenses, all else remaining same.
13. While one would like to maximize returns through Direct option, one should individually decide whether this difference is significant to forego intermediary services for full tenure.
14. Direct plans benefit when one is sure that intermediary offers no extra value, like investment advice and help worth extra commission.
15. One also needs to be cautious of switching costs and capital gains, and confidence of their Do-It-Yourself (DIY) abilities.
16. Switching to Direct equity plans works best if they are planning to stay invested for long-term (like in your case) and after minimizing capital gains taxes while switching.
17. Switching to direct plans in non-equity funds isn't worthwhile, as tax-incidence is very high compared to benefit, and starting fresh direct plans is better.
18. Direct plans, to some extent, are a compromise on convenience as one would need to spend time and effort in selection, transaction and review of funds on DIY basis.
19. But for savvy investors, who can spend time and energy and manage these on their own, Direct plans are better in the long run.
20. 1 crore corpus invested @10% CAGR gives monthly SWP amount of 85,000 for 30 years in a Direct plan, but becomes 78,000 in a Regular plan @9% CAGR, due to NAV difference.