Direct vs regular mutual fund plan: what the 1% expense ratio difference actually costs you over 20 years
Direct and Regular Plans hold identical portfolios. The only difference is 1% per year — which on a ₹10,000/month SIP over 20 years compounds to ₹10 lakh less in your corpus. Here's why most people are in Regular Plans, the tax implications of switching, and where to invest in Direct.
All figures and facts in this article are sourced directly from primary government and regulatory publications — including the Reserve Bank of India, SEBI, EPFO, the Income Tax Department, PFRDA, and IRDAI — and verified before publication. No claim is published from a single source without corroboration.
For informational purposes only. Ek Crore does not recommend specific funds or platforms. Expense ratios change — verify current figures on AMFI or the fund house website before investing.
Every mutual fund in India comes in two versions: Direct Plan and Regular Plan. The underlying portfolio is identical — same fund manager, same stocks, same investment strategy. The only difference is cost. And over 20 years, that cost difference compounds into a gap worth lakhs.
What the two plans are
Regular Plan: When you invest through a distributor — a bank, a broker, or a financial advisor who earns commission — your money goes into the Regular Plan. The fund house pays the distributor a commission (called trail commission) out of the fund's assets, typically 0.5–1.0% per year. This commission is embedded in the fund's expense ratio.
Direct Plan: When you invest directly with the fund house (via their website or app) or through a platform that doesn't earn distributor commission (like Zerodha Coin, MF Utilities), your money goes into the Direct Plan. No commission is paid. The expense ratio is lower by exactly the amount that would otherwise go to the distributor.
The NAV difference: Because Direct Plan has a lower expense ratio, it accrues less cost daily, meaning its NAV grows slightly faster. Two investors — one in Direct, one in Regular — holding the same fund for 10 years will have different portfolio values despite investing the same amount, because the NAV growth rate differs.
How large is the expense ratio gap?
For a Nifty 50 index fund:
- Direct Plan: 0.10–0.20% per annum
- Regular Plan: 0.50–0.80% per annum
- Gap: approximately 0.4–0.6% per year
For an actively managed large-cap equity fund:
- Direct Plan: 0.70–1.10% per annum
- Regular Plan: 1.50–2.00% per annum
- Gap: approximately 0.8–1.0% per year
For an actively managed mid-cap equity fund:
- Direct Plan: 0.80–1.20% per annum
- Regular Plan: 1.80–2.20% per annum
- Gap: approximately 0.9–1.0% per year
The gap is consistent: approximately 1% per year for actively managed equity funds, and 0.4–0.6% for index funds. This 1% is not paid to you — it goes to the distributor each year, every year.
The rupee impact over 20 years
Scenario: ₹10,000/month SIP for 20 years. Underlying gross return: 12% CAGR.
| Direct Plan (11% net) | Regular Plan (10% net) | Difference | |
| Monthly SIP | ₹10,000 | ₹10,000 | — |
| Net return (after expense ratio) | 11% CAGR | 10% CAGR | 1% |
| Corpus at year 20 | ₹85.9 lakh | ₹75.9 lakh | ₹10 lakh |
Illustration at assumed constant returns. Actual returns are not constant.
₹10 lakh difference from a 1% annual cost gap on a ₹10,000/month SIP over 20 years. The total amount invested is ₹24 lakh in both cases. The extra ₹10 lakh is the compounded cost of the distributor's trail commission — paid out of your returns, invisibly, every year.
At ₹20,000/month SIP: the gap roughly doubles to approximately ₹20 lakh over 20 years.
◇ Quick check: Log in to your mutual fund platform and check whether your holdings are "Direct" or "Regular." In CAMS and Kfintech (the two main registrars), your account statement shows the plan type next to each fund name. If it says "Regular," you are in the commission-paying plan.
Why most people are in Regular Plans
Bank relationship managers: Banks earn trail commission on Regular Plans. When your bank RM calls to "help" you invest in mutual funds, they will almost always recommend Regular Plans. The fund house pays the bank, not you — but the cost comes from your returns.
Traditional brokers and advisors: Full-service brokers and many insurance agents who also sell mutual funds earn commission on Regular Plans. This is their business model.
Legacy investment: Many investors who started investing before Direct Plans became prominent (Direct Plans were introduced in 2013 by SEBI) are still in Regular Plans from older purchases.
Platform confusion: Some platforms (Paytm Money, Groww, Angel One) route investments to Direct Plans. Others route to Regular Plans. Some offer both. The plan type is stated at the time of purchase — but many investors don't check.
How to switch from Regular to Direct
The tax question: Switching from Regular to Direct is treated as a redemption and repurchase by the income tax department. If your Regular Plan units have appreciated, switching triggers capital gains tax at the time of switch. For equity funds held over 12 months: LTCG at 12.5% above ₹1.25L annual exemption. For units held under 12 months: STCG at 20%.
This means switching is not always immediately optimal — the tax on accumulated gains may outweigh the first few years of savings from the lower expense ratio.
The calculation:
- If you have large LTCG gains and are in a financial year where you have already used the ₹1.25L exemption elsewhere: defer the switch to a fresh financial year
- If your gains are modest or you have not used the exemption: switch — the long-term saving is worth the one-time tax
- For new investments: always invest in Direct Plan; there is no reason to start in Regular
Where to invest in Direct:
- Fund house websites and apps (e.g., HDFC MF, Nippon, Mirae — each has a direct investment option)
- MF Utilities (mfuonline.com) — one login for multiple AMCs
- Zerodha Coin — Direct Plan SIPs
- CAMS InvestEasy (camsonline.com) — Direct access to CAMS-serviced AMCs
- Kfintech MF (kfintech.com) — Direct access to Kfintech-serviced AMCs
⚠ Common mistake: Assuming that investing through a popular app automatically means Direct Plan. Groww routes to Direct Plans; some insurance company portals route to Regular. Check the "Plan Type" shown on the purchase confirmation screen before completing any transaction.
Does the advice from a Regular Plan distributor justify the cost?
This depends on what advice you are receiving. A fee-only financial planner (SEBI-registered investment advisor, or RIA) charges a flat fee for financial planning and invests your money in Direct Plans — you pay for the advice separately, but the fund cost is lower.
A distributor who earns trail commission is not legally required to act in your best interest (they are not registered as an advisor — they are distributors). They may recommend funds based on commission rates rather than your needs.
If you have a genuinely helpful relationship with a distributor who helps you stay invested through market downturns, provides meaningful financial planning, and keeps your portfolio aligned to your goals, the 1% cost may be worth it. If the "advice" is limited to suggesting which fund to buy at the beginning and then disappearing, the 1% annual cost produces no value.
For most salaried investors running a straightforward equity index fund SIP without complex financial planning needs, Direct Plan through a low-cost platform is the right approach.
Bottom line
- Direct and Regular Plans hold identical portfolios; the only difference is the expense ratio
- Regular Plans cost approximately 1% per year more than Direct Plans for equity funds — that goes to the distributor as trail commission
- On a ₹10,000/month SIP over 20 years, the 1% gap compounds to approximately ₹10 lakh in additional corpus in the Direct Plan
- Switching from Regular to Direct triggers capital gains tax — calculate whether it makes sense given your accumulated gains and tax position
- New investments: always start in Direct Plan; there is no reason to choose Regular unless you are paying for and receiving genuine financial advice
Frequently asked questions
Q: Is the Regular Plan return shown on fund websites inclusive or exclusive of the distributor commission?
A: Inclusive. The return figures published on AMFI and fund house websites for Regular Plans are the net returns after the higher expense ratio (which includes the commission). The Direct Plan return will be higher by approximately the expense ratio difference.
Q: I invest through my employer's group NPS or mutual fund platform. Is it Direct or Regular?
A: Often Regular. Corporate group platforms may have tie-ups with distributors. Check your account statement for the plan type — "Direct" will be explicitly mentioned. If it says "Growth" or "Dividend" without specifying "Direct," it is likely Regular.
Q: Can I have both Direct and Regular Plans of the same fund?
A: Technically yes — they are separate folios. In practice, there is no reason to do so. If you have both, consolidate into Direct.
Q: What is the expense ratio cap set by SEBI?
A: SEBI caps total expense ratios for equity funds at 2.25% for AUM up to ₹500 crore, tapering to 1.05% for very large AUM. Direct Plans are always lower than Regular Plans by the distributor commission component.
Sources: AMFI — fund expense ratios · SEBI circular on expense ratios · Direct vs Regular plans, ClearTax
Last verified: June 2026. Expense ratios change over time — verify the current figures on the fund house website or AMFI before investing.
Content on Ek Crore is for educational purposes only. Nothing here is financial advice. Always consult a SEBI-registered advisor, CA, or qualified professional before making investment or tax decisions.