Direct vs Regular plan — the 1% drag

Same fund, two SKUs. Direct skips the distributor commission. Compounded over 20 years, the gap is enormous.

3 min read · Last reviewed 8 June 2026

SEBI mandated the Direct plan in January 2013. Every open-ended mutual fund must offer two plans of the same scheme — a Regular plan and a Direct plan — with identical investment strategies but different expense ratios.

What the gap covers

The Regular plan's higher TER includes a "distribution commission" paid annually to the intermediary (broker, advisor, distributor platform) who brought in the investor. The Direct plan doesn't pay this commission — so its TER is lower by exactly that amount.

Typical gap by category:

Equity funds: 0.50-1.00% lower TER on Direct.
Debt funds: 0.20-0.60% lower TER on Direct.
Liquid / Overnight: 0.10-0.20% lower TER on Direct.

The compounding impact

The math is unforgiving. ₹10 lakh invested at 12% gross CAGR for 20 years:

Direct plan (0.50% TER): ₹81.0 lakh terminal value.
Regular plan (1.50% TER): ₹67.8 lakh terminal value.

The Regular investor ends up ~16% poorer for the same fund choice. Across a portfolio of multiple funds, the lifetime gap can easily be ₹25-50 lakh on a moderate corpus.

Who should use Regular

Regular plans aren't a scam — they pay for genuine value when:

Your distributor / advisor is helping you with goal planning, asset allocation, behavioural coaching during drawdowns.
The advisor's value adds more than the 1% drag (a real coach who stops one bad redemption pays for years of commission).
You're new to investing and need handholding to even start.

Regular plans aren't worth it when you're paying a commission for no service — which is the case if you're researching funds yourself, transacting through a distributor app out of habit.

How to switch from Regular to Direct

Through the AMC's website or app — log in, select scheme, choose "Switch to Direct".
Through CAMS / KFintech.
Through a Direct-only platform (the AMC, MFU, an RIA-mode app).

A switch from Regular to Direct is a taxable event — the Regular units are deemed sold, the Direct units bought. The benefit is permanent; the tax is one-time. For long-term holdings, the math usually favours switching.

Identifying Direct in scheme names

Most AMCs include "Direct" in the scheme name: "HDFC Top 100 Fund - Direct Plan - Growth". The ISIN is also different from the Regular plan ISIN.

Sources