Direct vs Regular Mutual Funds: Which Plan Saves You More?
The same fund, two plans — one quietly takes a commission cut every single year.
When SEBI introduced direct plans in January 2013, it handed Indian investors a powerful cost-saving tool. Yet more than a decade later, a large share of mutual fund assets still sit in regular plans — many investors unaware they are paying an annual commission that compounds against them over time.
What Is the Difference Between Direct and Regular Plans?
Every mutual fund in India is available in two variants under the same scheme:
- Regular Plan: You buy through a distributor (broker, bank relationship manager, or app acting as a distributor). The AMC pays the distributor a trail commission — typically 0.5% to 1.0% per year — which is recovered by charging a higher Total Expense Ratio (TER) to regular plan investors.
- Direct Plan: You buy directly from the AMC's website, MF Central, or a registered investment adviser (RIA). No distributor commission is paid, so the TER is lower and the NAV compounds faster.
The fund's underlying portfolio is identical — the same fund manager, the same stocks or bonds, the same strategy. Only the expense charged differs.
How Big Is the Expense Ratio Gap?
| Fund category | Typical Regular TER | Typical Direct TER | Difference |
|---|---|---|---|
| Large Cap Equity | 1.50% | 0.70% | 0.80% |
| Mid/Small Cap | 1.70% | 0.90% | 0.80% |
| Debt / Liquid | 0.40% | 0.15% | 0.25% |
| Index Fund | 0.40% | 0.10% | 0.30% |
The gap sounds small. It is not. Over long periods, the difference compounds dramatically.
The Compounding Cost: A ₹10,000/Month SIP Over 20 Years
Assume a gross return of 12% per year before expenses.
Regular plan effective return = 12% − 1.50% = 10.50%
Direct plan effective return = 12% − 0.70% = 11.30%
Monthly SIP = ₹10,000 | Period = 20 years (240 months)
Regular plan corpus ≈ ₹82.6 lakh
Direct plan corpus ≈ ₹91.2 lakh
Difference ≈ ₹8.6 lakh
That ₹8.6 lakh is money that went to distributors rather than your retirement. Use the SIP Calculator to run your own numbers.
Where to Buy Direct Plans
- AMC websites — Visit the fund house directly (e.g., hdfc.mf.com, icicipruamc.com, sbimf.com). Free, but you need separate logins for each AMC.
- MF Central (mfcentral.com) — AMFI's official portal; consolidates all AMC accounts, free, truly direct.
- Zerodha Coin — Charges a ₹50/month platform fee above ₹25,000 AUM; direct plans with a single dashboard.
- Groww / Paytm Money (Direct mode) — Free platforms offering direct plans; verify "Direct" label before transacting.
- SEBI-registered RIA — Pays you advice, charges a flat fee; still routes you to direct plans.
Red flag: If a platform earns money when you invest (zero explicit fee but they profit), they are likely distributing regular plans. Always check the plan name in your account statement — it must say "Direct".
When Regular Plans May Still Make Sense
Regular plans are not always wrong. Consider them if:
- You are a first-time investor who genuinely needs ongoing guidance from a distributor.
- The distributor provides meaningful portfolio reviews, rebalancing alerts, and behavioural coaching — not just a one-time sale.
- You lack the time or confidence to monitor your portfolio independently.
A good distributor can prevent costly mistakes (panic selling, over-trading) that far exceed the 0.8% annual commission. The question is whether your distributor is actually providing that service or simply collecting commission passively.
How to Switch from Regular to Direct
Switching from regular to direct within the same AMC is treated as a redemption and fresh purchase for tax purposes. This means:
- Short-term capital gains tax applies if units are less than 1 year old (equity) or 3 years (debt, post-2023 rules: slab rate).
- Long-term capital gains apply thereafter — 12.5% on equity gains above ₹1.25 lakh/year (FY 2025-26).
Strategy: Do not switch old units immediately if they attract significant tax. Instead, stop future SIPs in the regular plan and start new SIPs in the direct plan. Let the old regular units mature and switch gradually as they become long-term.
Check your projected tax on gains using our Income Tax Calculator.
Quick Decision Checklist
- Do I understand the fund category and why I am investing? → Direct
- Am I investing through a platform that charges me a visible advisory fee? → Direct (RIA model)
- Am I relying on a relationship manager at a bank who calls me during market dips to "switch funds"? → Switch to Direct
- Am I a nervous first-time investor who needs hand-holding? → Regular temporarily, then migrate
These figures are estimates for educational purposes. Consult a SEBI-registered advisor for personalised advice.
Frequently asked questions
Is the NAV of direct plans always higher than regular plans?+
Yes, always — from the very first day a scheme launches. Because direct plans charge a lower expense ratio, more of the daily returns are added to the NAV. Over time the gap between direct and regular NAVs widens continuously.
Can I hold direct and regular plan units of the same fund simultaneously?+
Yes, they are treated as separate folios within the same fund house. However, for clarity and tracking purposes, it is better to consolidate into one plan type.
Do direct plans have a minimum investment amount?+
No — the minimum investment is the same as the regular plan, typically ₹500 for SIPs and ₹1,000–5,000 for lump sums. There is no premium for buying direct.
Will I lose my existing units if I switch from regular to direct?+
Technically, switching is a redemption from the regular plan and a fresh purchase in the direct plan. Your money is not lost, but the transaction triggers a capital gains tax event. Plan the switch carefully to minimise tax.
Are direct plan returns guaranteed to be better?+
The lower expense ratio means direct plans will always outperform the identical regular plan net of costs — this is mathematically certain. However, direct plans cannot guarantee positive returns; the underlying market risk is the same.
Try the calculators
Keep reading
- What Is Expense Ratio in Mutual Funds? The Silent Return Killer
You never write a cheque for the expense ratio — it silently drains your returns every single day.
- SIP vs Lumpsum: Which Builds More Wealth?
SIP averages your buying price and lumpsum maximizes time in the market — which one builds more wealth depends on what you're actually choosing between.
- Types of Mutual Funds in India: A Complete Guide for 2025-26
India has over 40 SEBI-defined mutual fund categories — here is a plain-English map of every type and who should invest in them.
Priya is a long-term investing nerd who loves a good spreadsheet. She writes the kind of guides she wishes she’d had when she started saving in her twenties.