Direct plan

Every mutual fund scheme in India is offered in two plans: direct and regular. A direct plan is bought straight from the fund house — on its website, through its registrar, or through platforms that offer direct plans — with no distributor involved. Because no commission is paid, its expense ratio is lower, so its NAV grows slightly faster than the regular plan of the same scheme.

Why it matters

Both plans hold exactly the same portfolio and are managed identically. The difference in cost compounds over time, so over long holding periods the gap between the two plans’ values can be meaningful.

How to read it

• Same scheme, different NAVs. Direct and regular plans have separate NAVs; over time the direct plan’s is typically higher because of its lower costs.
• What you give up. A regular plan’s commission pays for a distributor’s services — help choosing from a range of schemes, paperwork, reviews and support through volatile markets. With a direct plan you do that work yourself or pay for advice separately.
• Switching from regular to direct is a redemption and a fresh purchase, which can trigger tax and exit loads.

Common misconceptions

• “Direct plans are different funds.” Same manager, same holdings; only the costs differ.
• “Direct is always the better choice.” It is cheaper. Whether it is better for you depends on whether you would otherwise use the services a distributor provides.

In India: Fund houses have offered direct plans for every scheme since 1 January 2013. A SEBI-registered investment adviser typically works with direct plans and charges a separate advisory fee.