Direct vs Regular plans: what's the real difference?

Let us declare the interest before the argument. Magathi Financial is a mutual fund distributor. We are paid a trail commission by the asset management company when you invest through a Regular plan, and we are paid nothing if you invest Direct. You should read what follows knowing that. How we are paid is set out in full on our commission disclosure page.

The mechanical difference

Every scheme is offered in two versions holding exactly the same portfolio, managed by the same manager:

• Direct plan — you transact with the AMC yourself. No distributor commission is built into the expense ratio.
• Regular plan — you invest through a distributor. The expense ratio includes the commission the AMC pays that distributor.

Because the expense ratio is deducted from the fund's assets, the Direct plan's NAV grows slightly faster. Nothing else about the two differs. Anyone telling you a Regular plan gives access to a better version of the fund is wrong.

What the difference costs, in rupees

For equity schemes the gap between Direct and Regular is typically somewhere around 0.5% to 1.0% a year. On ₹10,000 a month for twenty years, assuming 10% before costs:

Illustration only, at an assumed constant return — not a projection of any scheme. Actual returns vary and are not guaranteed.

Compared against ₹72.4 lakh at 10% with no cost difference. Actual expense ratios vary by scheme and are published in every factsheet.

That is a real amount of money and we are not going to dress it up. Over a long horizon, a recurring percentage is the most expensive thing in a portfolio after behaviour.

So what is the commission buying?

Honestly: nothing that you could not do yourself, if you reliably would. What a distributor actually provides is

• onboarding and KYC, and sorting it out when it fails;
• consolidated statements across schemes and AMCs, and help at redemption, transmission or nomination time — which matters most to whoever handles your affairs after you;
• a periodic prompt to rebalance, top up, or move a near-term goal out of equity;
• someone to call in the month the market is down 25% and everything in you wants to stop the SIP.

That last one is the only item on the list with a plausible claim to be worth 0.75% a year. Investors who stop contributing during falls, or sell and wait for clarity, routinely give up more than a decade of cost difference in a single decision. If a phone call prevents that once, it has paid for itself many times over.

But that is a conditional argument, and the condition is about you, not about us.

How to decide

Direct is likely the better fit if you understand asset allocation well enough to set and keep one, you have sat through at least one serious market fall without selling, you will genuinely review and rebalance, and you are comfortable handling KYC, paperwork and redemptions yourself. If that is you, you are paying for a service you do not need, and you should keep the money.

A distributor may earn the difference if this is unfamiliar ground, you have previously stopped or withdrawn during a downturn, you want one person accountable for the paperwork and for your family knowing what exists, or you simply know you will not get round to reviewing it. Being honest with yourself on that last point is worth more than any comparison table.

There is also a middle path people rarely mention: pay a SEBI-Registered Investment Adviser a fee for a plan, and implement it in Direct plans yourself. An RIA can give you advice as such; a distributor cannot — our role is execution and service, and any guidance we give is incidental to that.

What we will not do

We will not tell you Regular plans perform better, because they do not. We will not push a switch from Direct holdings you already own. If, having read this, you conclude Direct suits you, that is a perfectly good outcome and we would rather you reached it here than felt misled later.