Photo: Manish Yadav
Summary: Most investors assume the direct-versus-regular choice is a small technical detail that their app or bank RM will sort out. But this minor decision can drain lakhs over time. A mere one percentage point difference in cost, when compounded across SIPs, can widen into a meaningful gap in long-term wealth—even when everything else about the investment is identical. This article breaks down the maths behind that gap, when regular plans still make sense and how to decide which route genuinely suits your investing behaviour.
Most investors treat the direct vs regular question as a minor operational detail, something the app, distributor or bank relationship manager (RM) will sort out. After all, you’re buying the same fund, running the same SIP, for the same 10- or 20-year goal.
How much difference can the plan type really make?
In rupees, quite a lot.
Because of how expense ratios work, the direct vs regular choice alone can create a gap of nearly Rs 2 lakh over 10 years for a simple SIP. Same fund. Same risk. Same goals. The only difference is whether you let a built-in commission drag your returns or let that money stay in your corpus and compound for you.
This article breaks down the math, the behavioural trade-offs and a simple way to decide which plan works for your situation.
What really separates direct from regular
Before the numbers, it helps to understand the two plans clearly.
Regular plan
- You invest through a distributor: a bank RM, broker or platform driven by commissions.
- Their fee is embedded inside the fund’s expense ratio.
- You pay more every year.
- In return, you may receive hand-holding for onboarding, KYC and sometimes fund selection.
Direct plan
- You invest directly with the fund house or through platforms that explicitly offer direct plans.
- No embedded commissions → a lower expense ratio.
- Direct plans are often about 1 percentage point cheaper than regular plans.
- You take more responsibility for your decisions.
Despite being cheaper and cleaner, about 77 per cent of diversified equity fund assets remain in regular plans. Most investors still pay more than they need to, often without realising it.
Why a ‘small’ 1 per cent cost difference becomes huge
A 1 per cent gap feels trivial for one year. On a Rs 3 lakh portfolio, it’s just Rs 3,000.
But mutual funds charge expenses on a growing corpus. SIPs keep adding capital. Compounding amplifies differences over time.
This can be illustrated clearly. For example:
- Rs 10,000 monthly SIP
- 20-year duration
- 12 per cent pre-expense return assumption
- Direct plan expense ratio: 1 per cent
- Regular plan expense ratio: 0.5 per cent higher
The outcome?
- Direct plan grows to around Rs 80.6 lakh
- Regular plan grows to around Rs 75.5 lakh
A clean Rs 5 lakh gap purely due to cost.
Extend the duration or raise the SIP amount, and the difference widens dramatically.
A realistic 10-year SIP: Where the Rs 2 lakh gap comes from
Let’s use a grounded illustration.
Assumptions
- SIP: Rs 15,000 per month
- Horizon: 10 years
- Underlying fund return (before costs): around 13 per cent
- Direct plan expense ratio: 1 per cent
- Regular plan expense ratio: around 1 per cent higher
- Net returns:
- Regular plan: around 11 per cent p.a.
- Direct plan: around 12 per cent p.a.
Total invested: Rs 18 lakh
Results
- Regular plan grows to around Rs 31.5–31.6 lakh
- Direct plan grows to around Rs 33.4–33.5 lakh
Difference: around Rs 1.8–2 lakh. Same SIP. Same fund. No extra risk. Just different cost structures.
Scale this to Rs 20,000 or Rs 25,000 SIPs, or extend the horizon, and the savings become even more meaningful.
What can this Rs 2 lakh difference represent? 3–4 years of school fees, a car down payment, a buffer to absorb inflation in long-term goals.
The direct vs regular choice is not a technicality. It directly determines how much money you keep.
When regular plans still make sense
If direct were perfect for everyone, the whole country would have shifted long ago. But three non-cost factors matter.
1. Advice and hand-holding: Regular plans bundle in ongoing support—onboarding, KYC assistance, fund selection guidance and behavioural nudging. The quality varies, but the support exists.
A direct plan doesn’t bundle advice, so if you want professional guidance, you must arrange it separately (fee-only advisors, Value Research Fund Advisor, etc.).
2. Behaviour management: A good adviser, whether commission-based or fee-based, can prevent expensive mistakes such as:
- panic exits in corrections
- chasing momentum
- unnecessary fund churn
For some investors, this behavioural support matters more than cost.
3. Managing complexity: If your financial life includes multiple goals, volatile income, taxation issues or family-level planning, ongoing guidance helps. Regular plans provide that convenience inside a single relationship, even though it comes with commissions.
A simple framework to choose direct or regular
Ask yourself three questions:
1. Do you understand basic fund selection and risk?
If yes → direct suits you.
If not → regular may help if the advisor is competent.
2. Will you review your portfolio at least once a year?
If yes → direct works well.
If no → a regular plan might prevent neglect.
3. How do you behave when markets fall?
If you get anxious and react quickly → guidance matters.
If you stay calm → direct plan maximises returns.
How to shift from regular to direct, safely
1. Check lock-ins and exit loads
- ELSS has a three-year lock-in
- Some categories have one-year exit loads
2. Factor in taxes
Switching is treated as redemption (withdrawing money) → capital gains tax applies.
- LTCG (long-term capital gains) on equity is taxed at 12.5 per cent only above the Rs 1.25 lakh annual limit.
- You can stagger switches across financial years to keep taxes low.
3. Practical approach
- Stop SIPs in regular plans
- Start equivalent SIPs in direct plans
- Gradually switch existing units, prioritising:
- Units beyond exit-load periods
- Years where taxable gains remain within thresholds
For older portfolios, paying some tax today may still be worth it for decades of lower costs.
Common real-life situations
1. “I started with a bank RM. Now I am more confident.”
We often highlight that once your confidence improves, migrating to direct plans is sensible.
2. “My SIPs are small now, but I will increase later.”
Starting with direct plans ensures all future step-ups automatically benefit from lower costs.
3. “I want advice but without lifelong commissions.”
Pay separately for advice, execute SIPs in direct plans. You get guidance without commission drag.
Action checklist: what you can do this weekend
1. Check what you hold: Download your CAS (consolidated account statement) and see whether your schemes are “Regular” or “Direct”.
2. Estimate your cost gap: Look up expense ratio differences on Value Research. A 1 per cent gap compounded over 10 years is when this Rs 2 lakh effect shows up.
3. Apply the three-question framework: Knowledge, time and behaviour.
4. Make one change: Start with one meaningful SIP where the maths clearly favours direct.
And if you’re unsure where to begin, Value Research Fund Advisor can help. With personalised fund recommendations aligned to your goals and risk profile, it makes the shift to better investing choices easier and clearer.
Disclaimer
This article is meant solely for information and education. It is not personalised investment advice or a recommendation to buy, sell or switch any specific mutual fund, plan variant or platform. Investors should consider their financial goals, risk tolerance, tax situation and, where appropriate, consult a qualified adviser before making any investment decisions.
This article was originally published on November 30, 2025.
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