Continuing from my last article where we had seen the difference in return that we get by ONE TIME INVESTMENT/ LUMP-SUM AMOUNT while investing in DIRECT / REGULAR MODE. Now we will study the difference when investment is done through S.I.P (DIRECT/REGULAR MODE).

Financial Advisors Role

SIP AMOUNT = Rs 10,000/ MONTH 
TIME = 5 Years 
RATE OF RETURN = 12% (after expense common to both regular & direct plan)

PLAN DIRECT PLAN  REGULAR PLAN – EXPENSE RATIO  
PARTICULAR 1% 1.50% 2%
RATE OF RETURN 12% 11.88% 11.82% 11.76%
AMOUNT 6,00,000 6,00,000 6,00,000 6,00,000
TIME 5 Yrs 5 Yrs 5 Yrs 5 Yrs
RETURN AFTER 5 Yrs  8,16,696 ₹ 8,14,076 ₹ 8,12,770 ₹ 8,11,467
Difference In Return ₹ 2,620 ₹ 3,926 ₹ 5,229

Here we see in the span of 5 years the difference in return with 1% expense ratio is Rs 2620, if this expense ratio is 1.5% then the gap is of  Rs 3926 & with 2% expense ratio it come to Rs 5229.

SIP AMOUNT = Rs 10,000/ MONTH 
TIME = 10 Years 
RATE OF RETURN = 12% (after expense common to both regular & direct plan)

PLAN DIRECT PLAN  REGULAR PLAN – EXPENSE RATIO  
PARTICULAR 1% 1.50% 2%
RATE OF RETURN 12% 11.88% 11.82% 11.76%
AMOUNT 12,00,000 12,00,000 12,00,000 12,00,000
TIME 10 Yrs 10 Yrs 10 Yrs 10 Yrs
RETURN AFTER 10 Yrs  ₹ 23,00,386 ₹ 22,84,246 ₹ 22,76,228 ₹ 22,68,243
Difference In Return ₹ 16,139 ₹ 24,158 ₹ 32,143

As the investment time is increased from 5 years to 10 years, we see a compounding Effect in return with a larger gap this reminds us of (time value of money), here the difference of Rs 16,139 with 1% expense ratio. This difference comes up to Rs 24,158 if the expense ratio is 1.5% & Rs 32,132 difference with 2% expense ratio.

SIP AMOUNT = RS 10,000/ MONTH 
TIME = 20 Years 
RATE OF RETURN = 12%

PLAN DIRECT PLAN  REGULAR PLAN – EXPENSE RATIO  
1% 1.50% 2%
PARTICULAR
RATE OF RETURN 12% 11.88% 11.82% 11.76%
AMOUNT 24,00,000 24,00,000 24,00,000 24,00,000
TIME 20 Yrs 20 Yrs 20 Yrs 20 Yrs
RETURN AFTER 20 Yrs  ₹ 98,92,553.65 ₹ 97,34,100.21 ₹ 96,55,953.51 ₹ 95,78,517.61
Difference In Return ₹ 1,58,453 ₹ 2,36,600 ₹ 3,14,036

The above table indicates S.I.P returns in 20 years, this gives us the reason to think over again about our investment, just 1% of of expense ratio gives difference Rs 1,58,453. With 1.5% expense ratio gap is of Rs 2,36,600 & the highest gap of Rs 3,14,036 if expense ratio is 2%.

Fool Proof

Now to conclude in the above tables we have seen the amount differences for (5/10/20 years) if the same sip amount (10,000) with (2%) expense ratio-Regular plan is continued for 25 years then the difference in return from direct & regular plan comes to Rs 7,81,000. And if continued for 30 years then difference amount will be Rs 18,11,000. THIS HUGE DIFFERENCE IN AMOUNT GIVES A BETTER REASON TO THINK  BEFORE INVESTING YOUR MONEY.

S.I.P encapsulate principles of investing such as

  • Disciplined Investment,
  • Compounding
  • Averaging.

when we follow these principle the result we see is a huge corpus is created which helps achieving our goals at the required time.

PARTICULAR REGULAR PLAN  DIRECT PLAN 
Third Party Involvement  YES NO
Expense Ratio HIGH LOW
N.A.V LOW HIGH
Returns LOW HIGH
Market Analysis Updated By Advisor Self Updation
Investment Advise Given By Advisor Self Analysis

Financial Advisors Role

So whether to decide for (DIRECT/ REGULAR MODE). Investors who wish to invest but do not have knowledge & time to study the market can ho for REGULAR MODE. Investor who can take help of their investment advisor (by making one time fees payment) who will guide the investors accordingly can go for DIRECT MODE.

Author Bio

Qualification: Graduate
Company: N/A
Location: AGRA, Uttar Pradesh, IN
Member Since: 24 Jul 2020 | Total Posts: 11
I have Cleared CA (intermediate) also cleared various series conducted by N.I.S.M (National Institute of Securities Market), Investment Advisory, Research Analyst, Merchant Banking & Retirement planning. Recently cleared exam of Independent Director conducted by IICA ( Indian Institute Of Corporate View Full Profile

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