Market Basics · Chapter 5 / 36
Direct vs Regular plan — the 1% drag
Same fund, two SKUs. Direct skips the distributor commission. Compounded over 20 years, the gap is enormous.
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
- SEBI — Direct Plans Introduction (Circular dated 13 September 2012) · accessed Jun 2026
- AMFI — Direct Plans Investor Education · accessed Jun 2026