Every mutual fund in India comes in two variants: regular and direct. Regular plans pay a commission to a distributor — your broker, bank, or advisor — and that commission is embedded in a higher expense ratio. Direct plans have no distributor, so the expense ratio is lower by 0.5% to 1.2% depending on the fund category. The NAV of a direct plan is always higher than the regular plan of the same fund, reflecting this cost difference compounding over time.
The wealth gap in hard numbers
Consider a ₹10,000/month SIP over 20 years at a gross return of 12% per annum:
- Regular plan (expense ratio 1.5%): Net return ~10.5%. Final corpus approximately ₹76 lakh.
- Direct plan (expense ratio 0.5%): Net return ~11.5%. Final corpus approximately ₹88 lakh.
The difference: ₹12 lakh — on a total investment of ₹24 lakh. The gap is not 1% per year; it is 16% of your final wealth, because the 1% difference compounds over two decades.
For a ₹50,000/month SIP, the same math yields a gap of approximately ₹60 lakh over 20 years.
Why most investors are still in regular plans
Distributors — bank relationship managers, insurance agents, traditional mutual fund brokers — earn trail commissions of 0.5–1% of AUM annually from regular plans. Their incentive is to keep clients in regular plans and actively steer them away from direct plans. Many investors genuinely do not know direct plans exist; others are told by their bank RM that "regular plans have better service" — which is categorically false.
When regular plans might be justified
If you are genuinely receiving ongoing financial planning advice from a SEBI-registered investment advisor (RIA) who charges a transparent fee and helps you construct, rebalance, and review your portfolio, a regular plan might be acceptable if the advisor's value exceeds the expense ratio gap. But advisors charging via trail commissions — not transparent fees — have a structural conflict of interest.
How to switch
Switching from regular to direct is straightforward: log into AMC websites directly (fundsindia.com, kuvera.in, coin.zerodha.com) and execute a switch transaction. Note that a switch is a redemption and fresh purchase — it may trigger capital gains tax if your units have appreciated. For recent investments with minimal gains, switch immediately. For old units with large unrealized gains, plan the switch in a tax-efficient way over multiple financial years.
Check your existing plans today
Log into your CAMS or KFintech account and look at your current plan — it will explicitly say "Direct" or "Regular" on the statement. Use our fund comparison tool to see the NAV difference and project the long-term impact of switching.