In a regular plan, where does the distributor's commission come from?

Your money — every year, on the whole balance, inside the higher expense ratio

The fund house's own profits, as a marketing cost

A one-off charge taken on the day you first invest

The lesson's arithmetic runs ₹1 lakh for 20 years at an assumed 10% against 9%. How big is the one-percent gap by the end?

Over ₹1.1 lakh — more than the amount first put in

About ₹20,000 — one percent of ₹1 lakh, twenty times over

Nothing, since both plans hold identical companies

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.

Direct vs regular — the same fund, twice

The word "Direct" appears in the scheme's name and on the account statement. That is how you check which one you hold.
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

The actual document

Your statement, and the one word on it that costs the most

Sample Asset Management Ltd

Account statement · 31 August 2026

Folio: 10234567/89
Holder: S. Iyer
Statement date: 31 August 2026

Your holding

SchemeSample Flexi Cap Fund — Regular Plan
Units held4,000.000
NAV₹50.0000

What the plan costs you a year

Expense ratio, this plan1.65%
Expense ratio, direct plan0.65%
The gap, on ₹2,00,000₹2,000

Value of your holding₹2,00,000

A fictional statement. Both plans of every scheme publish their expense ratio; the fund house’s own site lists them side by side.

Tap a numbered marker to see what that line means.

1
Scheme. The two words that matter are the last two. "Regular" means this was bought through a distributor who is paid a commission out of your money every year for as long as you hold it.
2
Expense ratio, this plan. Never billed, never shown as a debit here — it is taken out of the NAV before the NAV is published. That is why a fee this size is invisible on the one document you actually read.
3
Expense ratio, direct plan. The identical scheme, identical manager, identical holdings, with no distributor in the middle. SEBI has required both plans to exist since January 2013.
4
The gap, on ₹2,00,000. Charged on the whole balance, every year, and it compounds against you. Over twenty years a one-point gap costs more than the amount originally invested.
5
Value of your holding. 4,000 units at ₹50. The number on the statement is the same in both plans on day one — it is year fifteen where the two versions of this document stop matching.

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?

This stays in your browser and is never sent anywhere — not to us, not to anyone. It disappears when you leave the page.

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.