When investing in mutual funds, an important decision investors need to make is choosing between direct and regular plans.
allow you to invest directly in a fund without any intermediary, while regular mutual funds are routed through distributors or advisors. Although both have the same underlying portfolio, they differ mainly in cost and the way they are accessed.
So, let’s understand what direct and regular mutual funds mean, how they differ, and the benefits and limitations of each.
What are direct mutual funds?
Direct mutual funds allow you to buy units directly without involving or routing the investment through any distributor, broker, or agent. You can invest in these plans through the AMC’s website, mutual fund platforms, or other Sebi-regulated investment platforms that offer direct funds without involving a distributor.
Since there is no commission paid to distributors or agents, the expense ratio of this plan is lower, which can increase total returns over time.
What are regular mutual funds?
are purchased through intermediaries such as brokers, mutual fund distributors, or financial advisors, who act as a link between the investor and the fund house.
However, this intermediary comes at a cost, with regular plans having a higher expense ratio than direct plans.
Should you invest in direct or regular plan?
Let’s understand the difference between direct and regular funds through an example.
Suppose you invest a lump sum amount of ₹50,000 in the XYZ – Direct Plan for 5 years, and the fund generates an annual return of 10%. Since the expense ratio is 0.3%, which is already adjusted in the daily NAV, the effective return came at 9.7%. At the end of 5 years, your investment would grow to ₹79,433.
Now, if you invest in the XYZ Large Cap Fund – Regular Plan, which has the same underlying portfolio and is managed by the same fund manager, but charges a higher expense ratio of 0.8%. The effective return reduces to 9.2% and the final value of your investment after 5 years would be ₹77,640.
This example shows how even a small difference in expense ratio can impact long-term returns. Although both direct and regular funds have the same underlying portfolio, the higher expense ratio in the regular plan gradually reduces overall returns.
As both direct and regular plans are often available on the same investment platforms, it is important to carefully check the fund name before investing. Mutual funds clearly mention “Direct” or “Regular” in the scheme name, helping you to select the suitable plan.
| Basis | Direct Plan | Regular Plan |
| Meaning | Invest directly without any distributor or agent | Invest through intermediaries like brokers, agents, or distributors |
| Expense Ratio | Lower, as there are no distributor commissions | Higher, as it includes distributor/agent commissions |
| Returns | Higher potential returns due to lower costs | Slightly lower returns due to higher expense ratio |
| NAV (Net Asset Value) | Higher NAV compared to Regular Plan | Lower NAV compared to Direct Plan |
Both direct and regular plans of a fund invest in the same underlying portfolio and carry the same level of risk. The key difference lies in how they are bought and the costs involved. Direct plans eliminate distributor commissions, resulting in lower expense ratios and higher NAVs, which can translate into better long-term returns as compared to regular plans.
However, regular funds may be worth considering if your preferred brokerage or investment platform does not offer direct funds. This can provide the convenience of managing all your investments through a single platform.
Disclaimer: This is purely for educational/ informational purposes and should not be taken as any sort of investment advice. Always consult a SEBI-registered advisor before making any investment decisions.