Direct vs regular mutual funds: What's right for you?

Summary: Regular or direct, which one should mutual fund investors choose? While one is cheaper, the other one feels easier. However, the choice you make today will have a significant impact on how much you earn. Here, we compare both types of plans and tell which one suits you best.

“Should I go regular or direct?” is a question that leaves many mutual fund investors confused. Though most are aware that direct plans of mutual funds are cheaper, very few realise how that minuscule 1 per cent difference in costs today can materially impact the final corpus in the long run.

That’s why making the choice between direct and regular plans deserves more attention and thought than it usually gets. And so, we decided to compare direct and regular funds to determine which is right for most investors.

Why do direct and regular plans exist in the first place?

There’s a simple reason why there are two types of plans for the same mutual fund scheme: whether an intermediary or a distributor exists.

Direct plans are purchased from the fund house or via an online platform without a distributor. Regular plans, on the other hand, are bought through a distributor or a mutual fund advisor.

In a regular plan, the distributor earns a commission that is paid by the fund house. This commission is not charged separately to the investor. Instead, it is included in the scheme’s expense ratio, which is the annual fee charged to manage the fund. As a result, regular plans have a higher expense ratio than direct plans, even though both invest in the same portfolio and are managed by the same fund manager. Simply put, the portfolio, strategy and performance before expenses are identical. Only the cost structure differs.

Costs make all the difference

The difference between the expense ratios of direct and regular plans is typically 0.5-1 per cent. Though it may seem like an insignificant number today, a higher expense ratio not only reduces returns in a single year but also drags down the base on which returns are earned in the coming years.

Here’s an example to understand this better. Let’s assume you start a monthly SIP of Rs 10,000, with an annual rate of return of 12 per cent before expenses.

We also assume that the expense ratio of the fund’s direct plan is 1 per cent while that of the regular plan is 2 per cent.

In the early years, the difference between the two plans' corpus will seem trivial. However, after five years, the gap between the two portfolios will be just over Rs 19,000, and after year 10, the difference will be about Rs 1.1 lakh.

But compounding does not work evenly over time. The longer the investment horizon, the faster the gap widens. After 20 years, the difference will widen to nearly Rs 9.2 lakh. And by year 25, it will further widen to Rs 21 lakh. After 30 years, the direct plan portfolio will be ahead by more than Rs 44 lakh.

The reason for this widening gap is simple: higher costs eat into your returns every year. Those lower returns then compound on themselves. What begins as a barely noticeable difference eventually turns into a material shortfall, especially for long-term goals such as retirement.

However, this is not to say that regular plans are useless. For some investors, they may work better than direct ones.

When a regular fund makes sense

Despite the clear cost advantage of direct plans, there are situations where investing or sticking to a fund’s regular plan is more suitable. 

• You are getting advice that adds value: If your distributor helps with asset allocation, keeps you invested during market downturns, and prevents costly knee-jerk decisions, the higher cost of a regular plan may be justified. Good advice can save far more than it costs. But if the relationship is limited to transactions or an annual statement, paying an ongoing fee makes little sense.
• Switching is not practically possible: In some cases, switching is not an option. Certain funds, particularly in the international category, have paused fresh inflows due to regulatory limits. Since moving from a regular plan to a direct plan involves redeeming and reinvesting, investors may be unable to enter the direct plan. In such situations, staying put is a necessity, not a choice.
• You are a novice investor: If you are someone who has just started investing in mutual funds and are unfamiliar with how they work or which ones are right for you, seeking the help of an advisor is ideal. Once you become familiar with how the market works, you can consider switching to the direct plans of the funds.

The takeaway

Deciding between direct and regular mutual funds ultimately comes down to cost versus convenience. While regular plans may offer comfort and handholding, direct plans provide a structural cost advantage, leaving you with more money in the long term.

For investors who can manage basic execution and remain disciplined, direct plans are more suited. Over long periods, controlling what you can often matters more than hoping for better outcomes from what you cannot control.

How can you switch from regular to direct mutual funds?

If you are keen on switching your regular fund investments to direct, the Value Research Advisor App helps you do so. What’s more, it helps you choose suitable investments, stay disciplined and earn better long-term returns with clear, expert-led guidance.

Download the Advisor App today

Also read: Going direct: The move that can save lakhs

This article was originally published on February 06, 2026.