Direct and Regular are two purchase routes of the same mutual fund scheme. They share the same portfolio and fund manager, but Direct plans carry a lower expense ratio, have a separate (usually higher) NAV, and can therefore compound a bit faster over time. Regular plans bundle distributor support into the cost. (AMFI India)
What this guide covers (and why it matters)
Choosing between Direct and Regular affects your long-term returns and how much guidance you receive. In this guide, we’ll explain the regulatory basis, cost mechanics, real-world impact on wealth, how to switch, and who should pick which—using India-specific rules and examples.
Direct vs Regular: The official definitions
- Direct Plan: A separate plan meant for investments not routed through a distributor. It must have a lower expense ratio (no distributor commission) and a separate NAV. Mandated by SEBI via circular CIR/IMD/DF/21/2012 (effective 1 Jan 2013).
- Regular Plan: The same scheme purchased through a distributor (bank/RIA/MFD platform). Expense ratio is higher as it includes distribution costs. (AMFI India)
- Same portfolio, different cost: Direct and Regular are part of the same fund with a common portfolio and manager; the only structural difference is cost. (AMFI India)
Why costs differ (TER 101)
- Mutual funds charge a Total Expense Ratio (TER) to the scheme. TER limits are governed under Regulation 52 of the SEBI MF Regulations and have been revised in recent years; funds must also disclose TER and performance as per SEBI. (AMFI India, Securities and Exchange Board of India)
- Because Direct excludes distribution commissions, its TER is lower than Regular—hence the Direct plan’s NAV tends to be higher over time. (AMFI India)
How cost differences compound (with numbers)
Assumptions (illustrative):
- Gross pre-expense annual return: 12%
- Direct TER impact ≈ 1.00% → Net ≈ 11.00%
- Regular TER impact ≈ 1.75% → Net ≈ 10.25%
Lump sum ₹10 lakh for 15 years
- Direct ≈ ₹47.85 lakh
- Regular ≈ ₹43.22 lakh
- Difference ≈ ₹4.63 lakh extra with Direct
SIP ₹10,000/month for 15 years (end-of-month contributions)
- Direct ≈ ₹45.47 lakh
- Regular ≈ ₹42.41 lakh
- Difference ≈ ₹3.06 lakh extra with Direct
Formulae used
- Lumpsum FV: FV=P×(1+r)n\text{FV} = P \times (1+r)^{n}
- SIP FV (monthly, ordinary annuity): FV=SIP×(1+i)m−1i\text{FV} = \text{SIP} \times \frac{(1+i)^{m}-1}{i}
Note: These are simplified, hypothetical examples to demonstrate the impact of a 0.75% TER gap. Actual TERs vary by fund category/size and can change.
Quick comparison (featured snippet)
| Feature | Direct Plan | Regular Plan |
|---|---|---|
| Portfolio & Fund Manager | Same as Regular | Same as Direct |
| Expense Ratio | Lower (no distributor commission) | Higher (includes distribution) |
| NAV | Separate & usually higher over time | Separate & usually lower |
| Where to buy | AMC website, MFU, some exchange/digital routes | Banks, distributors, many broker apps |
| Who is it for? | DIY investors or those using fee-only advice | Investors wanting ongoing distributor handholding |
Source: AMFI knowledge center & SEBI circular on Direct plans. (AMFI India)
Where and how to buy Direct plans
- AMC websites (most offer end-to-end e-KYC, SIP/STP/SWP, etc.)
- MFU (Mutual Fund Utilities) and certain exchange/digital platforms that enable direct transactions. (AMFI India)
Taxes: Any difference between Direct and Regular?
No. Taxation depends on the scheme type (equity/debt/other) and your holding period, not on whether you chose Direct or Regular. Funds must follow the same tax rules; SEBI’s 2018 circular also tightened disclosure standards around expenses and performance for investor clarity. (Securities and Exchange Board of India)
Switching from Regular to Direct (and vice versa)
- A “switch” is processed as a redemption from one plan and a purchase into the other plan—even within the same scheme. That means it triggers capital gains tax, and cut-off rules apply like any redemption/purchase. (AMFI India, The Economic Times)
- Exit load on switches: In May–Apr 2025, SEBI advised the industry via AMFI on not charging exit loads for plan-to-plan switches within the same scheme. Multiple AMCs (e.g., Mirae Asset, quant) issued addenda removing exit loads on such switches. Always check your scheme’s latest addendum/KIM before switching. (Cafemutual, Mirae Asset, ICICI Direct)
Pro tip (India-specific): If you have large unrealised gains in Regular, consider staggered switching (e.g., using the annual LTCG exemption on equity/equity-oriented funds) to manage tax outgo. (General planning approach; consult your tax advisor.)
How to decide: A suitability checklist
Choose Direct if you:
- Are comfortable researching funds, reading factsheets, and sticking to an asset-allocation plan.
- Already work with a fee-only SEBI-registered RIA and don’t need embedded distribution.
- Want to minimise costs in core, long-horizon holdings.
Choose Regular if you:
- Value ongoing human support for goal mapping, rebalancing, and behaviour coaching.
- Prefer a one-stop relationship (e.g., with your bank/MFD) for execution and basic after-sales service.
Common misconceptions—cleared
- “Direct has higher risk because NAV is higher.”
False. Risk is from the underlying portfolio, which is identical across plans. Higher Direct NAV is simply the cost effect. (AMFI India) - “Distributors give extra returns to offset costs.”
Returns come from the fund’s portfolio. A distributor may help you select/hold better, but cost math still applies. - “Switching within the same scheme isn’t taxable.”
It is treated like redemption + purchase for tax purposes; plan ahead. (The Economic Times)
FAQs
Q1. Does SEBI require Direct plans?
Yes. SEBI mandated a separate Direct plan (lower expense, separate NAV) for investments not routed through distributors.
Q2. Are TERs regulated?
Yes. TER caps fall under SEBI (Mutual Funds) Regulations, Reg 52; see AMFI’s summary and SEBI’s disclosure rules. (AMFI India, Securities and Exchange Board of India)
Q3. Where can I invest in Direct?
AMC websites, MFU, and certain exchange/digital platforms. (AMFI India)
Q4. Is there still an exit load on switching plans?
Many AMCs now don’t levy exit loads on Direct↔Regular switches (post SEBI/AMFI guidance in 2025), but check your scheme’s addendum/KIM. (Cafemutual, Mirae Asset, ICICI Direct)
Bottom line for Indian investors
- Direct vs Regular is a cost choice, not a portfolio choice. The same fund at a lower ongoing cost compounds into meaningfully higher wealth over long horizons. (AMFI India)
- The right plan depends on whether you need embedded advice or prefer DIY/fee-only advice.
- If moving from Regular to Direct, review taxes and your fund’s latest load addendum before executing. (The Economic Times, Mirae Asset)