Direct vs Regular Mutual Fund: Which is Better For Investors?
When it comes to investment in mutual funds, an overlooked question is – Direct vs Regular mutual fund, which one is better for an investor? Mutual funds have become one of the most popular investment options for Indian investors seeking to grow their wealth.
Why are Mutual Funds popular among investors?
They’re simple, regulated by SEBI, and provide access to professionally managed portfolios. Investing in Mutual Funds gives investors an opportunity to invest in a diversified manner. Mutual Funds cater to a variety of financial goals whether it’s building a retirement nest egg, saving for a child’s education, or simply growing money for the future.
But here’s something many investors don’t realize. When you invest in a mutual fund, you actually have two ways to do it: through a Direct Plan or a Regular Plan. This seemingly small difference in how you invest can have a big impact on your returns.
However, if you’ve never heard of this before, you’re not alone.
Many investors in India choose mutual funds without even knowing whether they’re using a direct or regular plan. Often, the decision is made for them by their bank, relationship manager, or distributor, without fully explaining the implications.
We’re here to simplify that choice for you. We’ll break down what Direct Plan vs Regular Plans really mean, and how they affect your investment returns. More importantly, why savvy investors are choosing Direct Plans with the support of a SEBI-registered Investment Adviser. Most importantly, we’ll do this in plain language. No jargon, no technical fluff. Just the information you need to make informed decisions.
Because when it comes to your money, you deserve transparency, clarity, and control.
What Are Direct and Regular Plans in Mutual Funds?
If you’ve invested in mutual funds or are planning to, you may have come across terms like Direct Plan and Regular Plan. At first glance, both may seem the same. After all, they belong to the same mutual fund scheme, have the same fund manager, and invest in the same stocks or bonds.
But there’s a crucial difference in how you invest. And this small detail can significantly affect how much you earn over time. Let’s break it down in simple terms.
Regular Plan Scheme in Mutual Funds:
A Regular Plan is the most common route people have traditionally used to invest in mutual funds. It involves a third party like a mutual fund distributor, relationship manager, banker, or agent. These agents help you select and invest in mutual funds.
While this might seem convenient, there’s something important you need to know:
In a Regular Plan, the fund house pays a commission to the intermediary every year for bringing your investment.
This commission is not paid out of your pocket separately. Instead, it’s built into the fund’s expense ratio, which is the annual fee charged by the fund to manage your money. The result is that the cost of running a Regular Plan is higher. This reduces your investment returns every year.
Think of it like this:
It’s like ordering food through an app that charges a delivery fee and adds a markup on the price. You still get the same food, but end up paying more than what you pay if you picked it up yourself.
What is a Direct Plan?
A Direct Plan is exactly what it sounds like. As an investor, you invest directly with the mutual fund company or AMC (Asset Management Company). No middleman. This saves you from paying commission to the agents and also earn the benefits of the fund’s performance directly.
Here’s what makes Direct Plans different:
No distributor or advisor commission.
Lower expense ratio.
Higher returns in the long run (because you save on hidden costs).
Direct Plans were introduced by SEBI (Securities and Exchange Board of India) in 2013 to bring more transparency and cost-efficiency to investors. It was a move to empower individuals by giving them the choice to invest without needing to go through agents.
So in simple terms:
| Feature | Regular Plan | Direct Plan |
|---|---|---|
| Route of Purchase | Through agent/distributor/bank | Directly via AMC or platforms |
| Commission Paid | Yes (built into the fund cost) | No commission |
| Expense Ratio | Higher | Lower |
| Returns | Slightly lower | Higher (due to cost savings) |
| Advice Included? | Often bundled with commission | Not included (separate advisory) |
Imagine you want to buy a mobile phone.
In one option, you go to a local electronics shop. The shopkeeper helps you choose a model and processes your purchase. But he adds a small margin to the price. You don’t directly pay for his help, but the phone costs you a bit more.
In the second option, you buy the same phone directly from the manufacturer’s website. No middleman, no extra margin. You get the same product but at a lower cost.
This is exactly the difference between Regular and Direct mutual fund plans.
Return difference between Direct and Regular Mutual Fund
As an investor, you may think: “It’s just a 1% difference in expense ratio. How much can that really matter?”
Let’s look at an example:
Suppose you invest ₹10 lakhs in a mutual fund.
The Regular Plan has an expense ratio of 2%, and the Direct Plan has 1%.
Over 20 years, assuming a 12% return on the Direct Plan (and 11% on the Regular), here’s how your investment grows:
| Plan Type | Annual Return | Value After 20 Years |
|---|---|---|
| Regular | 11% | ₹80.6 lakhs |
| Direct | 12% | ₹96.5 lakhs |
That’s almost ₹16 lakhs more. Just by choosing the Direct option.
So Why Doesn’t Everyone Choose Direct Mutual Fund Plans?
Great question. Here are a few reasons:
Lack of Awareness
Many investors simply don’t know that Direct Plans exist. Or, they don’t know what they mean.Dependence on Distributors
Investors often trust their bank or agent to take care of their investments. Unknown to the fact that these intermediaries may have an incentive to recommend funds that pay higher commissions.Fear of Going Solo
Some people hesitate to go the Direct route in mutual funds because they worry about choosing the wrong fund or managing their investments alone.
This is exactly where the concept of a SEBI-Registered Investment Adviser (RIA) comes in. A qualified professional who can help you invest in Direct Plans while giving you honest, unbiased advice. But there’s a smarter solution.
Choose Direct Mutual Funds with a SEBI Registered Investment Adviser
Going direct doesn’t mean going alone.
If you’re not confident picking funds or building a financial plan on your own, that’s completely okay. This is where a SEBI Registered Investment Adviser (RIA) like us can help. We offer unbiased advice and helps you invest exclusively in Direct Plans.
Who is a SEBI Registered Investment Adviser?
A qualified financial professional regulated by SEBI.
Legally bound to act in your best interest — known as a fiduciary duty.
Earns fees only from you, the client. Not from fund houses.
Offers customised, goal-based investment planning.
This setup gives you the best of both worlds:
Lower cost of Direct Plans
Expert, conflict-free advice
Let’s look at three investors:
| Investor | Strategy | Returns (10 years) |
|---|---|---|
| Abhishek | Regular Plan via Distributor (11% CAGR) | ₹56.3 lakhs |
| Bhargav | DIY Direct Plan, no guidance (11.5%) | ₹59.3 lakhs |
| Chaitanya | Direct Plan + SEBI RIA (12% – 0.2% fees) | ₹61.1 lakhs |
Even after paying advisory fees, Chaitanya comes out on top with better planning, asset allocation, and behavioral support. Here’s how:
Abhishek invests with a Bank/Distributor (Regular Plan)
Expense Ratio is High: They’re unknowingly paying 1%–1.5% in commissions annually.
Advice May Not Be Truly Independent: Distributors might push higher-commission funds.
Asset Allocation May Be Flawed: Risk profiling may be ignored or poorly done.
Portfolio Rebalancing is Missing: No periodic guidance = stagnant or mismatched portfolio.
Result:
They earn ~11% CAGR.
After 10 years on ₹25L investment → ~₹56.3L.
Hidden costs reduce overall return potential.
Bhargav chooses to be a DIY Investor Using Direct Plans
No Middlemen: Saves on commissions, a big win!
Expense Ratio is Low: This boosts long-term returns.
However, no Professional Guidance:
May overinvest in trending funds or chase returns.
No systematic asset allocation or goal alignment.
Might panic and exit during market corrections.
Result:
Earns a slightly higher return: ~11.5% CAGR.
₹25L over 10 years → ~₹59.3L.
Better than Regular Plan — but still not optimal due to behavioral gaps.
Chaitanya Uses Direct Plans with a SEBI Registered Investment Adviser
Uses Direct Plans: Pays no commissions — just like Investor B.
Gets Expert Help: RIA creates a diversified, goal-linked portfolio.
Bias-Free Recommendations: No product pushing, advice is fiduciary.
Better Risk Management: Based on true risk tolerance, not guesswork.
Ongoing Monitoring: Portfolio is rebalanced, underperformers are pruned.
Behavioral Coaching: During volatility, RIA prevents panic selling.
Result:
Gross return: ~12% CAGR
After fees (~0.2%): Net return ~11.8% CAGR
₹25L over 10 years → ~₹61.1L
Even after paying a 0.2%–0.5% advisory fee, Investor C’s net returns are higher. He earned more than ₹4.8 lakhs better than the distributor route and nearly ₹1.8 lakhs better than going solo.
The difference between Direct and Regular mutual fund plans might seem small. However, over time, it can be the difference between good returns and great returns.
Regular Mutual Fund Plans are convenient but come at a cost — often hidden and ongoing.
Direct Mutual Fund Plans are more cost-effective and transparent, However, they may require guidance.
That’s why the ideal strategy for most investors is to combine the low cost of Direct Plans with the expertise of a SEBI-Registered Investment Adviser.
Your investments deserve better.
If you’re currently investing through Regular Plans or unsure how your money is being managed, consider taking control — switch to Direct Plans and work with an RIA who puts you first.
Talk to us today.
