Every mutual fund scheme comes in two versions. The direct plan is bought straight from the fund house; the regular plan is sold through a distributor who earns a commission. The commission comes out of your returns, every year.
The only difference
Both plans own exactly the same stocks or bonds and have the same fund manager. The regular plan has a higher expense ratio, typically 0.5–1.5% a year more for equity funds, because it pays the distributor. That is why direct plans always show a higher NAV after a few years.
What 1% costs over 20 years
| Investment (illustrative) | At 12% (direct) | At 11% (regular) | Gap |
|---|---|---|---|
| ₹10,000 monthly SIP, 20 years | ≈ ₹99.9 lakh | ≈ ₹87.4 lakh | ≈ ₹12.6 lakh |
| ₹10 lakh lump sum, 20 years | ≈ ₹96.5 lakh | ≈ ₹80.6 lakh | ≈ ₹15.8 lakh |
Fees compound too
A 1% fee sounds small, but it is charged on your whole balance every year, including on gains you made earlier.
How to check your plan
- Look at the scheme name in your statement: direct plans say ‘Direct’, regular plans say ‘Regular’ or nothing.
- Your consolidated account statement (CAS) from CAMS or KFintech lists every folio with the plan type.
- Compare the scheme’s expense ratio on the fund house website for both plans.
Switching sensibly
Switching from regular to direct counts as a redemption, so it can trigger capital gains tax and exit load. A common approach is to start all new SIPs in direct plans and move old units gradually, using the yearly LTCG exemption and waiting for exit loads to expire.
If you value a distributor’s or advisor’s guidance, paying for it is fine. Just know what you are paying, and compare it with a fee-only SEBI-registered advisor.
Calculators for this guide
Finkoin tip
Enter your SIP and the two expense ratios to see the rupee gap over your horizon.
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