Since 1 January 2013, every mutual fund scheme in India has been offered in two versions: a direct plan and a regular plan. They hold the same portfolio, are run by the same fund manager and follow the same strategy. The difference lies in how you buy them — and therefore in what they cost.
Same fund, two price tags
When you invest through a mutual fund distributor, the fund house pays the distributor a commission out of the scheme's expenses, and that cost sits in the regular plan's expense ratio. When you invest directly with the fund house, or through a channel that offers direct plans, no distribution commission is paid and the expense ratio is lower by roughly that amount.
Because each plan carries a different cost every day, their NAVs drift apart over time, and the direct plan's NAV ends up higher.
What does not differ
It helps to be precise about what stays the same. Both plans hold the same securities in the same proportions, under the same fund manager and the same investment objective. They share the same riskometer, the same exit-load structure and the same tax treatment. Neither plan is "safer" or "riskier" than the other. The only structural difference is the cost — and the service, if any, that comes with it.
What the difference can add up to
For illustration, assume a SIP of ₹10,000 a month for 20 years. Suppose the direct plan's net return is a hypothetical 11% a year and the regular plan's is 0.75 percentage points lower:
| Net return (hypothetical) | Illustrative value after 20 years |
|---|---|
| 11% | about ₹87.4 lakh |
| 10.25% | about ₹79.1 lakh |
The gap — about ₹8.2 lakh on ₹24 lakh invested — is the long-run cost of distribution in this illustration. Actual cost differences vary by scheme and change over time.
What a regular plan pays for
The commission in a regular plan funds a relationship. Depending on the distributor, that can include:
- help understanding your goals and choosing categories and schemes that fit them
- handling KYC, documentation, nominations and transaction support
- consolidated statements, periodic reviews and rebalancing prompts
- someone to talk to when markets fall and the urge is to stop
The last item is easy to underrate. Many of the most expensive mistakes in investing are behavioural: stopping SIPs in a downturn, chasing last year's top performer, redeeming at the bottom. If ongoing support helps you avoid those, it may be worth more than its cost. If you would make those decisions calmly on your own, it may not be.
Questions to ask yourself
- Do I know how to choose funds that match my goals and horizon — and do I want to?
- Will I review my portfolio every year, rebalance and handle paperwork myself?
- How did I behave in the last significant market fall?
- Is the service I receive worth the cost difference, in rupees, over my horizon?
There is no universally right answer. A confident, organised investor may prefer direct plans. Someone who values guidance, or who knows they tend to react to headlines, may reasonably choose a regular plan with a distributor they trust.
Mixing approaches
The choice does not have to be all or nothing. Some investors manage a few simple holdings — an index fund, say — on their own in direct plans, and use a distributor's help for the parts of the portfolio where they want guidance. Others pay a fee directly for advice, separately from where they invest; in that model, direct plans are the norm. What matters is that you know what you are paying, to whom, and for what.
About switching
Moving from a regular plan to the direct plan of the same scheme — or the other way round — is treated as redeeming one and buying the other. That means:
- Capital gains tax on gains in the units you redeem, under the rules for that fund type. See how investments are taxed.
- Exit loads on units still within the scheme's exit-load period.
- A fresh holding period for the new units.
A switch can still make sense, but run the numbers first. Directing new money to your chosen plan, and moving older units only once they are past the exit-load period and tax-efficient to move, is often simpler than switching everything at once.
Ask how anyone is paid
Whichever route you choose, it is reasonable to ask any distributor, platform or adviser how they are paid and which registrations they hold. CompoundX publishes its registrations and partner relationships on its Disclosures page, and our consultation guide lists other questions worth asking. Our factsheet guide shows where each plan's expense ratio appears.