Guide · Costs
Regular vs Direct plans: what the difference costs over 10 and 20 years
By Shreedhanam Research · Updated
Short answer
A mutual fund's Regular and Direct plans own exactly the same portfolio, run by the same manager. The only difference is the expense ratio: the Regular plan's is higher because it includes the distributor's commission. On ₹10 lakh growing at 12% a year before costs, a 0.75% gap costs ₹10,67,120 over 20 years.
What is the difference between a Regular and a Direct plan?
Since 1 January 2013, every mutual fund scheme in India has offered two plans. Money in both is pooled into one portfolio. The fund house takes its expenses out of each plan's assets every day, and the Regular plan's expense ratio also pays a trail commission to the distributor who looks after the investor. So the two plans have different NAVs, and the Regular plan's returns are lower by about the size of the gap.
Everything else is identical: holdings, fund manager, risk, and the rules the fund follows. A mutual fund distributor can only place clients in Regular plans; a Direct plan is bought straight from the fund house, through a platform, or with an investment adviser who charges a fee.
What a gap of 0.5% to 1% costs
The table assumes ₹10 lakh invested once, a return of 12% a year before costs, and a Direct plan expense ratio of 0.75%. The Regular plan's expense ratio is the Direct one plus the gap shown. Taxes and exit loads are left out.
| Expense gap | Period | Direct plan value | Regular plan value | Difference | Share of Direct value |
|---|---|---|---|---|---|
| 0.5% | 10 years | ₹29,04,024 | ₹27,76,114 | ₹1,27,910 | 4.4% |
| 0.5% | 20 years | ₹84,33,355 | ₹77,06,811 | ₹7,26,544 | 8.6% |
| 0.75% | 10 years | ₹29,04,024 | ₹27,14,081 | ₹1,89,943 | 6.5% |
| 0.75% | 20 years | ₹84,33,355 | ₹73,66,235 | ₹10,67,120 | 12.7% |
| 1% | 10 years | ₹29,04,024 | ₹26,53,298 | ₹2,50,726 | 8.6% |
| 1% | 20 years | ₹84,33,355 | ₹70,39,989 | ₹13,93,366 | 16.5% |
For a SIP of ₹10,000 a month for 20 years at the same assumptions and a 0.75% gap, the Direct plan reaches ₹84,04,212 and the Regular plan ₹76,83,191, a difference of ₹7,21,021.
These are illustrations from a fixed assumed return. Real returns vary year to year and are not guaranteed. Mutual Fund investments are subject to market risks, read all scheme related documents carefully.
How to explain the cost to a client
- Show the gap as a number, on their plan. Use the actual expense ratios of the client's two plans, both published by the fund house, not a rule of thumb.
- Say what the cost pays for. Choosing and reviewing funds, rebalancing, paperwork, nominations, KYC changes, and the call in a falling market that keeps a SIP going.
- Compare returns plan for plan. A client's Regular plan should be judged against other funds' Regular plans, and a Direct plan against Direct plans. Mixing them flatters one side.
- Write it down. A short note with both expense ratios and the date makes the conversation easy to revisit.
In Shreedhanam, DhanGuru and Fund X-ray answer on the Regular plan by default, because that is what most distributors' clients hold, and show the Direct plan's cost next to it with the date of each expense ratio.
Questions
Do Regular and Direct plans hold the same stocks?
Yes. Both plans of a scheme share one portfolio and one fund manager. Only the expense ratio, and therefore the NAV and the return, differs.
Why is the Regular plan's expense ratio higher?
It includes the trail commission paid to the mutual fund distributor who serves the investor. The Direct plan has no distributor commission.
How much does the Regular plan cost over 20 years?
In an illustration with ₹10 lakh, a 12% return before costs and a 0.75% expense gap, the Regular plan ends ₹10,67,120 lower after 20 years. Actual costs depend on the fund's real expense ratios and returns.
Can a mutual fund distributor sell Direct plans?
No. A distributor earns commission only on Regular plans. Direct plans are bought from the fund house, through an execution platform, or through a SEBI-registered investment adviser who charges a fee instead.
Sources
- SEBI circular on mutual funds, 13 September 2012 (separate plan for direct investments from 1 January 2013)
- AMFI, total expense ratio of mutual fund schemes
- Shreedhanam calculation: compound growth at a fixed rate, monthly SIP paid at the start of each month
For mutual fund distributors. This page is information, not investment advice or a recommendation to buy, sell or switch any fund.