For most Indian investors, mutual funds are an accessible and efficient way to build long-term wealth. But while we focus on fund selection and returns, we often ignore a small detail that makes a huge difference: the expense ratio.
A minor shift from a regular mutual fund to a direct mutual fund, saving just 1% in annual fees, can compound into lakhs—or even crores—over time.
Understanding the Difference
Regular plans involve intermediaries—your bank, broker, or financial advisor—who earn a commission from the fund house. This commission is built into the expense ratio, typically making regular plans 1–1.5% more expensive than direct plans.
Direct plans, on the other hand, are purchased directly from the mutual fund company. There’s no commission, so the expense ratio is lower.
Let’s Talk Numbers
Imagine you invest ₹10 lakhs for 20 years in two different mutual funds. Both funds deliver a 12% gross annual return, but the expense ratio differs:
- Regular Plan: 2% expense → Net return: 10%
- Direct Plan: 1% expense → Net return: 11%
Let’s see what happens:
Plan Type | Net Return | 20-Year Value |
Regular Plan | 10% p.a. | ₹67.3 Lakhs |
Direct Plan | 11% p.a. | ₹81.4 Lakhs |
Difference | — | ₹14.1 Lakhs |
That’s right—₹14.1 lakhs more just by switching to a direct plan.
If you scale this to a ₹50 lakh portfolio, you’re looking at over ₹70 lakhs in potential additional wealth.
The Power of Compounding
This is not magic—it’s compound interest at work. Saving 1% annually doesn’t just add up, it multiplies. Your money earns more because less is being taken away every year as fees.
Think of compounding as a snowball: The more you save early, the bigger the snowball gets. Direct plans let more of your money stay invested—and the result shows up over time.
So, Why Don’t More People Switch?
- Lack of awareness: Many investors don’t know direct plans even exist.
- Perceived complexity: Switching is seen as difficult or risky.
- Fear of losing help: Investors think they need a broker to choose funds.
But in reality, switching is straightforward. Most platforms today guide you through it, and the tax impact—if any—is usually a one-time event, far outweighed by the long-term gain.
Should You Switch?
If you’re investing for the long term (5+ years), then yes—switching to direct mutual funds can be one of the smartest financial decisions you make.
Even if you end up paying a bit of capital gains tax during the switch, the benefits of lower expenses compound every year going forward.
Conclusion
A 1% decision can create a 100% difference.
Switching from regular to direct mutual funds is a small, one-time action—but the reward is enormous. You let your money work harder, longer, and with fewer deductions.
Don’t wait to make the shift. Every year you delay is money lost to unnecessary fees.
Review your current mutual fund statements. If you’re still in regular plans, calculate what it’s costing you—and explore how switching to direct plans could help you retire wealthier.
Author: Swapnil Kulkarni
Co-Founder, PriceBridge – A PMS of Ayan Analytics Pvt. Ltd.
Swapnil is a veteran in the wealth management space with over 17 years of experience. A CNBC TV18 Financial Advisor Award nominee (2010), he specializes in managed mutual fund strategies and is passionate about empowering investors through education and smart financial planning.
