Every mutual fund scheme in India comes in two versions: a regular plan and a direct plan. Same fund, same manager, same portfolio. The only difference is that the regular plan pays a commission to whoever sold it to you — a bank, an app, a distributor — every single year you stay invested. The direct plan doesn't.
That commission is baked into the fund's expense ratio (TER), so you never get a separate bill. It just quietly reduces your returns.
How big is the gap?
For an actively managed equity fund, the difference between the regular and direct expense ratio is often 0.5% to 1.2% per year. It sounds trivial. It isn't, because it compounds for as long as you hold the fund.
Take a ₹20,000 monthly SIP for 20 years, and assume the fund's underlying return is 12% a year.
- In the direct plan you keep close to that 12%.
- In a regular plan giving away ~1% to commission, you effectively earn ~11%.
Over 20 years, ₹20,000 a month at 12% grows to roughly ₹2 crore. At 11%, it grows to roughly ₹1.75 crore. That ~1% gap costs you on the order of ₹25 lakh — and you received nothing extra for it.
The longer the horizon and the bigger the corpus, the wider the gap. This is why a recurring 1% matters far more than any one-time entry cost.
"But my distributor gives me service"
Sometimes they genuinely do. The question is whether that service is worth ~1% of your entire portfolio, every year, indefinitely — and whether the person picking your funds earns more for recommending some funds over others. A commission isn't dishonesty; it's simply a conflict of interest, where the seller's pay and your outcome aren't perfectly aligned.
How to tell which one you hold
Check your statement or your Consolidated Account Statement (CAS). The scheme name will literally say "Direct" or "Regular" (an older plan that just says "Growth" without "Direct" is regular). On the AMC or registrar website, the direct plan shows a different — usually noticeably lower — expense ratio.
Switching to direct
You can move to direct plans yourself through the AMC website, the registrar (CAMS/KFintech), or a platform that offers only direct plans. Two things to plan for:
- A switch from regular to direct is treated as a redemption and a fresh purchase, so it can trigger capital gains tax and, for equity funds, an exit load if you're still inside the holding window. Mind the timing.
- Going direct means you — or a fee-only adviser you pay separately — take on fund selection and periodic review.
Where a fee-only adviser fits
A SEBI Registered Investment Adviser on a fee-only model recommends direct plans and charges you a transparent fee instead of earning commission. You pay for advice, not for distribution, so the adviser has no reason to prefer one fund over another except suitability. That alignment is the entire point of the model.
The takeaway: the cheapest version of a fund is the one that isn't handing someone a slice of your money every year. Over two decades, that slice is enormous.