Direct and Regular are just two ways to buy the same mutual fund. Direct plans skip distributor commissions, keep the expense ratio lower, and usually grow a bit faster over time. Regular plans bundle advisor/distributor support into the cost.
Why this matters
A 0.5–1.0% cost gap may look small today, but it compounds for years. Choosing the right route can add lakhs to your long-term corpus—without changing the fund, the manager, or the portfolio.
Direct vs Regular
- Same scheme, same portfolio: Whether you buy Direct or Regular, you own the same underlying investments managed by the same fund manager.
- Different price tag: Regular plans include distributor commissions inside the Total Expense Ratio (TER). Direct plans don’t—so their TER is lower, and over time the Direct NAV tends to sit higher than Regular.
- Separate NAVs: Because costs differ, SEBI requires funds to run separate NAVs for Direct and Regular.
What is TER and why it moves the needle
TER is the annual “all-in” fee a fund charges the scheme for running costs. A lower TER means more of the fund’s gross return stays with you each year. That small edge compounds.
Thumb rule:
If your fund earns ~12% before expenses, then:
- At ~1.00% TER (Direct), you keep ~11.00%.
- At ~1.75% TER (Regular), you keep ~10.25%.
The longer you invest, the wider this gap gets.
A quick, scannable comparison
| Feature | Direct Plan | Regular Plan |
| Portfolio / Manager | Same as Regular | Same as Direct |
| Expense Ratio (TER) | Lower (no distributor commission) | Higher (includes distribution cost) |
| NAV | Separate & typically higher over time | Separate & typically lower |
| Where to invest | AMC website, MFU, select “Direct” platforms | Banks, distributors, many broker apps |
| Works best for | DIY or fee-only advised investors | Investors who want embedded guidance |
How costs compound
Assumptions (illustrative only):
Gross return = 12% p.a.; Direct net ≈ 11.0%; Regular net ≈ 10.25%
Case 1: ₹10 lakh lump sum, 15 years
- Direct (11.0%) → ~₹47.8 lakh
- Regular (10.25%) → ~₹43.2 lakh
- Extra with Direct: ~₹4.6 lakh
Formula:
Lump sum future value:
FV=P×(1+r)n\text{FV} = P \times (1+r)^n
Case 2: ₹10,000 SIP, 15 years
- Direct (11.0%) → ~₹45.5 lakh
- Regular (10.25%) → ~₹42.4 lakh
- Extra with Direct: ~₹3.1 lakh
Formula:
SIP future value (end-of-month):
FV=SIP×(1+i)m−1i\text{FV} = \text{SIP} \times \frac{(1+i)^m – 1}{i}
where i=r12i = \frac{r}{12}, m=12×yearsm = 12 \times \text{years}
These are simplified, constant-return illustrations to show how a 0.75% TER gap can add up. Actual returns and TERs vary by category and over time.
Taxes: any difference?
No. Taxation depends on the scheme type and holding period, not on whether you chose Direct or Regular. Equity vs debt rules, LTCG vs STCG—everything remains the same across plans.
Switching between Regular and Direct
- A switch is treated as redemption + purchase within the same scheme. That means capital gains tax rules apply based on your holding period and scheme type.
- Exit loads: Many funds do not levy exit loads on plan-to-plan switches, but this is scheme-specific and can change. Always check the latest KIM/addenda before switching.
- Practical tip: If you hold a large unrealised gain in Regular, consider staggered switches (e.g., across financial years) to manage tax outflow. Speak to your tax advisor for specifics.
Where to buy Direct vs Regular
- Direct: The fund house (AMC) website, Mutual Fund Utilities (MFU), and select “Direct” digital platforms.
- Regular: Your bank/distributor/MFD/broker app, where you get handholding built into the product cost.
Who should pick what?
Choose Direct if you:
- Prefer a cost-first approach and can stay disciplined.
- Are comfortable reading factsheets and sticking to an asset-allocation plan.
- Work with a fee-only (not commission-based) advisor who charges you transparently.
Choose Regular if you:
- Value ongoing, embedded guidance and service from a distributor.
- Want someone to help with goal mapping, rebalancing, and behaviour coaching—and you’re okay paying for it within the product.
Common myths—busted
- “Direct NAV is higher, so risk is higher.”
Risk comes from the portfolio, which is identical. Direct NAV is higher mainly because costs are lower and compound over time. - “My distributor can make up the cost difference through selection.”
Good advice is valuable, but the TER gap still compounds. If you want advice, decide whether you prefer paying explicitly (fee-only) or implicitly (Regular TER). - “Switching within the same scheme isn’t taxable.”
For tax purposes, a plan switch is treated like selling and buying. Plan the move to avoid surprises.
The bottom line
- Direct vs Regular is a cost decision, not a portfolio decision.
- If you don’t need embedded distribution, Direct usually leaves more of the return in your pocket.
- If you want comprehensive handholding inside the product, Regular is a fair trade-off—as long as you understand the cost.
- Switching is doable; just check loads, factor taxes, and stay invested according to your goals and asset allocation.