When you look at any mutual fund scheme on an AMC website, you will notice two options: Direct Plan and Regular Plan. Both invest in the exact same portfolio of stocks or bonds, managed by the same fund manager. So what is the difference?

The difference is in cost — and over time, that cost difference has a meaningful impact on your returns.

The Core Difference

A Regular Plan includes a commission paid to the mutual fund distributor (MFD) or advisor who recommended the fund to you. This commission is built into the fund’s expense ratio.

A Direct Plan does not include any distributor commission. You invest directly with the AMC (Asset Management Company), so the expense ratio is lower.

That is it. Same fund, same portfolio, same fund manager — just a different expense ratio.

How the Numbers Look

Here is a typical example:

The NAV of the direct plan is always higher than the regular plan because less money is being deducted as fees. The difference starts small but widens every year.

The Long-Term Impact

A 0.5% to 1% difference in expense ratio may not sound like much. But compounding works on this difference year after year. Here is what happens over time:

Assume you invest ₹10,00,000 as a lump sum and the gross fund return is 12% per year:

Over 30 years, the difference is ₹32 lakh on a ₹10 lakh investment — entirely due to the expense ratio gap. For SIP investors putting in money every month, the gap is even larger.

Who Should Choose Direct Plans?

Direct plans are ideal if:

• You can select funds yourself — You understand mutual fund categories, can read factsheets, and are comfortable choosing funds based on your own research
• You use online platforms — Most direct plan investments are made through AMC websites, apps, or direct-plan platforms
• You do not need handholding — You can manage your portfolio, rebalance when needed, and make decisions without an advisor’s guidance
• You are cost-conscious — You want to minimise fees and maximise returns

Who Should Choose Regular Plans?

Regular plans make sense if:

• You work with a financial advisor or MFD — If an advisor helps you select funds, reviews your portfolio, reminds you to stay invested during downturns, and handles paperwork — their commission through regular plans is how they are compensated
• You value personalised advice — A good advisor adds value beyond fund selection: goal planning, tax optimisation, rebalancing, and behavioural coaching
• You are new to investing — If you are just starting out and need guidance, a good distributor can help you avoid common mistakes
• The advice is genuinely valuable — If your advisor helps you stay disciplined and makes better decisions, the commission they earn through regular plans may be well worth it

The Nuance: Is Direct Always Better?

Not necessarily. Here is the honest answer:

Direct plan is cheaper, but not always better for you.

A good financial advisor can add more value than the 0.5-1% commission they earn. How?

• Preventing you from panic-selling during a crash (saving you 20-30% in a single year)
• Helping you allocate correctly across asset classes
• Ensuring you are not over-concentrated in a single sector or fund
• Planning for taxes efficiently
• Keeping you disciplined about SIPs during tough times

If an advisor prevents even one emotional mistake in a decade, they have more than earned their commission.

On the other hand, if your “advisor” just sold you a fund and never followed up, provided no planning or review, and adds no value beyond the initial transaction — then you are paying the commission for nothing, and a direct plan would be better.

How to Switch from Regular to Direct

If you are currently in regular plans and want to switch to direct:

1. New investments: Simply start investing in the direct plan of the same fund going forward. You can do this through the AMC’s website or a direct plan platform
2. Existing investments: You can switch your existing regular plan units to the direct plan of the same scheme. However, this is treated as a redemption and reinvestment, which means:
   • Exit load may apply (if within the exit load period)
   • Capital gains tax will be triggered on any gains
   • You get a fresh set of units in the direct plan

Because of the tax implications, switching existing investments should be evaluated carefully. For large portfolios with significant gains, the tax cost of switching may take several years to recover through the expense ratio savings.

A practical approach: Keep existing regular plan investments as they are (especially if they have significant unrealised gains). Start all new investments in direct plans.

How to Identify Direct vs Regular Plans

It is easy to tell them apart:

• Fund names include “Direct” or “Regular” — e.g., “XYZ Large Cap Fund - Direct Plan - Growth” vs “XYZ Large Cap Fund - Regular Plan - Growth”
• Different NAVs — The direct plan NAV is always slightly higher
• Different expense ratios — Always lower for the direct plan
• Same ISIN prefix, different suffix — The scheme codes are different

Key Takeaways

• Direct and regular plans invest in the same portfolio — the only difference is the expense ratio
• Direct plans are cheaper because they exclude distributor commission
• Over 20-30 years, the expense ratio difference can compound into lakhs of rupees
• Direct plans are best for self-directed investors comfortable making their own decisions
• Regular plans are fine if you work with a genuinely valuable advisor
• Switching existing investments from regular to direct has tax implications — evaluate before switching
• For new investments, direct plans are almost always the better choice if you do not need advisor support

The choice between direct and regular is ultimately about the value you get for the cost you pay. If you are paying for advice, make sure you are actually getting it. If you are not getting advice, there is no reason to pay for it.