Direct vs Regular Mutual Funds: What Most Investors Still Don’t Know

What Are Direct and Regular Mutual Fund Plans?

Every mutual fund in India offers two variants:

• Regular Plan – Sold via intermediaries like agents, banks, or brokers.
  
• Direct Plan – Bought directly from the mutual fund company, without intermediaries.
  
  

Both plans invest in the same portfolio and are managed by the same fund manager. The only difference lies in the expense ratio—the annual fee charged by the AMC (Asset Management Company).

The Hidden Cost of Regular Plans

Regular mutual funds include a distributor commission embedded within the expense ratio. This commission can range from 0.5% to 1.5% or more annually.

It may not seem like much—but over time, this difference compounds into a significant loss in wealth.

Let’s take a simple example:

That’s ₹16.4 lakhs of additional wealth just by choosing the direct plan and avoiding commissions.

Direct Plans = More of Your Money Working for You

Direct plans have lower expense ratios because there’s no commission paid to distributors. That means more of your money stays invested, earning returns. Over time, this boosts the power of compounding—your money earns on your money, year after year.

With regular plans, the ongoing commission drag slows down compounding.

Why Don’t More People Choose Direct Plans?

• Lack of awareness: Many investors simply don’t know that direct plans exist.
  
• Dependence on intermediaries: Investors often rely on their bank or agent, assuming they’re being guided impartially.
  
• Fear of managing investments themselves: There’s a perception that direct plans are only for experts.
  
  

But in today’s digital age, investing in direct mutual funds has become easier than ever, with multiple online platforms offering comparisons, tools, and even advisory support for managing direct portfolios.

Important Consideration: Switching Costs

Switching from regular to direct plans is treated as a redemption and new purchase, which may attract capital gains tax. However, this is often a one-time cost, and the long-term benefits of higher returns easily outweigh this initial hit.

For example, even if you incur ₹50,000 in tax while switching ₹10 lakhs, you could still gain ₹16+ lakhs over the next 20 years with a direct plan. That’s a trade-off many investors are willing to make once they understand the math.

Conclusion 

The difference between regular and direct mutual fund plans isn’t just about fees—it’s about your future wealth.

Understanding expense ratios and choosing the right plan can be the difference between retiring with enough or falling short. If you haven’t reviewed your portfolio recently, now is the time to check whether you’re in regular plans—and calculate what it’s really costing you.

Ask your advisor or check your mutual fund statements. If you’re in regular plans, explore switching to direct mutual funds or consult an expert to understand the best route forward.

Author: Swapnil Kulkarni
Co-Founder, PriceBridge – A PMS of Ayan Analytics Pvt. Ltd.

Swapnil is a seasoned wealth management professional with over 17 years of experience in financial advisory and portfolio management. A nominee for the CNBC TV18 Financial Advisor Awards (2010), he specializes in Managed Mutual Fund strategies and is passionate about educating investors on building long-term wealth through data-driven, responsible investing.