Lesson 3 of 3 · 8 min
Direct vs regular: the fee gap that compounds
Same fund, same manager, same holdings, two price tags. How a distributor commission built into the expense ratio quietly compounds across twenty years.
Since January 2013, SEBI requires every scheme to come in two plans. The regular plan is bought through a distributor, whose commission is built into a higher expense ratio.
The direct plan is the same scheme with no distributor and no commission — identical fund, identical manager, identical holdings, lower annual charge. The gap is commonly around half a percent to one percent a year.
| What to compare | Direct plan | Regular plan |
|---|---|---|
| Bought via | The fund house or its app, yourself | A distributor, bank or app that earns commission |
| Commission inside the fee | None | Yes — paid to the distributor every year, from your money |
| Expense ratio | Lower | Higher, by the commission amount |
| Holdings and manager | Identical | Identical |
| Returns | The scheme's return, minus the lower fee | The same return, minus the higher fee — so lower, every year, by the gap |
Why obsess over one percent? Because it is charged on your whole balance, every year, and the losses compound. ₹1 lakh growing at an assumed 10% a year becomes about ₹6.7 lakh in 20 years.
The same fund with a fee one percent higher grows at 9% and reaches about ₹5.6 lakh. The gap — over ₹1.1 lakh — is bigger than the entire original investment. Same fund. Same manager. Different plan.
Your turn
Your fund balance is ₹2,00,000. The regular plan charges 1% more per year than the direct plan of the same scheme. Roughly how many rupees extra does that cost you this year?
Myth
“Regular plans do better, because an expert picked the fund for you.”
False
A regular plan and a direct plan of the same scheme hold exactly the same securities. The regular plan's return is lower by precisely the extra fee — every year, by construction. A good human helper can add real value by keeping you calm and consistent; that value comes from the human, not from the plan, and it can also be bought transparently with a visible fee.
Thinking through direct vs regular
Are you comfortable choosing schemes and reviewing them yourself once in a while?
Just for you
If someone in your family holds mutual funds, do they know which plan — direct or regular — their statement says? Would you know how to check?
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Check yourself
1 / 3
Kabir asks
Direct and regular plans of one scheme, side by side. What is different between them?
Done reading?
Saved in this browser — and finishes the course.