Direct vs Regular plans: how 1.2% a year costs lakhs

The fee is small; the time is long

Every mutual fund scheme is sold in two versions. The Direct plan is bought straight from the AMC or through a platform that does not take a commission. The Regular plan is sold through a distributor, and the distributor's commission is paid out of the scheme's expense ratio, every year, for as long as you stay invested.

Both plans own exactly the same shares and bonds. The only difference is the fee, and the fee is deducted from the NAV daily, so you never see a bill. That is why a gap of about one percentage point looks harmless. This post puts it in rupees.

How big the gap is today

Every AMC publishes the total expense ratio (TER) of both plans of every scheme. On the latest disclosures we hold, dated August and September 2026:

For one equity scheme in ten, the gap is 1.6 points or more. In other words, the regular plan of a typical active equity fund costs about twice what the direct plan does.

The gap shows up in returns too. We matched 216 equity schemes whose Direct and Regular Growth plans both have ten years of NAVs. Over the ten years to 1 October 2026 the median Direct plan compounded at 13.82% a year and the median Regular plan at 12.70%. The median difference within the same scheme was 1.11 points a year: almost exactly the fee gap. Our earlier posts on the expense-ratio gap and the return gap measured from NAVs break this down by category.

What 1.2 points a year does to a lump sum

Take ₹10 lakh invested once. Suppose the direct plan compounds at 12% a year and the regular plan, holding the same portfolio, at 10.8%. These rates are illustrations, chosen to match the median fee gap above; nobody knows what any fund will return.

A fee that is "only" 1.2% a year takes about a tenth of the final value over ten years, a fifth over twenty and more than a quarter over thirty. The difference grows faster than the corpus does, because each year's fee is charged on a balance that already includes the earlier years' growth.

What it does to a SIP

Most people invest monthly, so here is a ₹10,000 SIP at the same two rates:

The SIP gap starts smaller than the lump-sum gap, because the early instalments are small and the later ones have had little time to compound. But by year 20 the difference, ₹12.35 lakh, is more than half of everything you put in over the two decades. By year 30 it is nearly twice the money invested.

You can run your own amounts and rates on the direct vs regular calculator and see the general effect of a one-point difference on the impact of 1% calculator.

What the extra fee buys

A regular plan is not a scam. The commission pays a distributor, and some distributors earn it: they help choose an asset allocation, stop clients from selling in a crash, handle paperwork and nominations, and review the portfolio each year. For an investor who would otherwise do none of this, a well-used adviser can be worth more than the fee.

The trouble is that the fee is the same whether or not the service arrives. Three questions decide whether it is worth paying:

1. Do you get advice, or just a transaction? If the only contact was a form to sign, you are paying for advice you never received.
2. Does the advice change what you do? A review you ignore is worth nothing.
3. Could you buy the same help for less? A SEBI-registered investment adviser charges a separate, visible fee and can only recommend direct plans. On a large portfolio a flat fee can cost far less than 1.2% a year.

Switching from Regular to Direct

Moving to the direct plan of the same scheme is not a transfer inside the fund. It is a redemption of the regular units and a fresh purchase of direct units, so:

• Capital gains tax applies to the units you sell, at the rates for that fund type. For an equity fund, gains on units held over 12 months are long-term and taxed at 12.5% above ₹1.25 lakh a year; gains on younger units are short-term and taxed at 20%. Our guide to mutual fund taxation covers the rules for debt and hybrid funds.
• Exit loads apply to units still inside the scheme's exit-load period, often one year for equity funds.

A common way to manage both is to stop the regular SIP, start a direct SIP in the same scheme, and switch older regular units in stages: units already past the exit-load period first, and long-term gains up to the ₹1.25 lakh exemption each financial year. Our guide to Direct vs Regular plans walks through the steps.

The short version

The fee gap between the two plans is around 1.2 points a year in equity funds and 0.4–0.5 points in debt and index funds. It looks small in any one year, but over twenty years on a ₹10,000 SIP it adds up to about ₹12 lakh at the rates used here. The regular plan is worth that only if the person you pay is doing something for you that you would not do yourself.

This post is for education only and is not investment, tax or legal advice. Past returns do not predict future returns, and the growth rates used in the examples are illustrations, not forecasts.