Direct vs Regular Mutual Fund Plans: Same Portfolio, Different Costs

Pick any large mutual fund scheme in India and you’ll usually find it listed twice: once as a Regular plan and once as a Direct plan. Same fund manager, same stocks, same bonds, same benchmark. Yet the two show different NAVs, and over the years the gap between them keeps widening. The whole direct vs regular mutual fund question comes down to one thing: who you pay for advice and distribution, and how that payment is taken out of your returns.

This piece walks through what SEBI actually requires of the two plans, why the NAVs drift apart, a worked example with hypothetical numbers, and how to decide which one suits you. We’ll stick to what the rulebook says and keep the opinions clearly labelled as opinions.

Direct vs regular mutual fund: the basic difference

A regular plan is the version you buy through a mutual fund distributor, whether that’s a bank relationship manager, an individual agent or a distribution platform. The distributor earns a commission, and that commission is paid out of the scheme’s expenses.

A direct plan is the version you buy straight from the fund house, or through a channel that doesn’t take a distribution commission. SEBI created it in its September 13, 2012 circular on re-energising the mutual fund industry. That circular told mutual funds to offer a separate plan for direct investments, meaning investments not routed through a distributor, in existing as well as new schemes. It said the plan must have a lower expense ratio that excludes distribution expenses and commission, that no commission can be paid from it, and that it must have its own NAV. The direct-plan section of that circular took effect from January 1, 2013.

The same requirement now sits in SEBI’s Master Circular for Mutual Funds dated March 20, 2026, issued alongside the SEBI (Mutual Funds) Regulations, 2026 that came into force on April 1, 2026. Paragraph 3.4 repeats the core idea in plain terms: a separate plan for direct investments, a lower expense ratio because no distribution commission is paid, and a separate NAV.

So the portfolio is shared. The cost isn’t.

Why the two NAVs drift apart

Both plans start from the same pool of assets. Every day, the scheme’s expenses are deducted from each plan’s assets before the NAV is struck. The regular plan carries the extra cost of distributor commission, so a slightly larger slice comes off its assets every single day. The direct plan loses a smaller slice.

On any one day that difference is tiny. Over a year it shows up as roughly the gap in expense ratios. Over ten or twenty years, compounding turns it into a real sum of money, because the rupees that didn’t go out as commission stay invested and earn returns of their own.

Same fund manager, same portfolio, same market. The only thing that differs is how much leaks out in costs every day, and compounding does the rest.

SEBI also stops fund houses from loading other costs onto the direct plan to narrow the gap. Paragraph 11.3.5 of the master circular says all fees and expenses charged in a direct plan, in percentage terms and under every head including the investment and advisory fee, cannot exceed what’s charged under those heads in the regular plan. In other words, a direct plan can’t be made more expensive head-by-head to claw back the missing commission.

If you want the mechanics of how the expense ratio is built, our explainer on the mutual fund expense ratio breaks down each component.

A worked example (hypothetical numbers)

Let’s put numbers on it. Everything below is made up for illustration; it isn’t any real scheme’s return or expense ratio.

Say you invest a lump sum of ₹10 lakh in a scheme whose portfolio earns 12% a year before expenses. The regular plan costs 1.6% a year and the direct plan costs 0.6% a year, a gap of one percentage point. To keep the arithmetic simple, we’ll just subtract the expense ratio from the gross return, so the regular plan compounds at 10.4% and the direct plan at 11.4%.

Look at how the gap behaves. After one year it’s ₹10,000, which is exactly 1% of what you put in. After ten years it’s over ₹2.5 lakh. After twenty, the direct plan in this example is worth about 19.8% more than the regular plan, even though the yearly cost gap never moved from one percentage point.

That’s the compounding point in action. The cost difference is charged on a growing balance, and every rupee saved keeps compounding too.

A caveat we want to be clear about: real schemes don’t earn a smooth 12% a year, and actual expense ratio gaps vary by scheme and by category. Equity schemes, debt schemes and index funds all have different cost structures. The table shows the shape of the effect, not a forecast.

What you get for the extra cost in a regular plan

It would be lazy to say regular plans are simply a worse deal. The commission pays for something. A good distributor helps you pick schemes that fit your goals, handles paperwork, nudges you to keep your SIP running when markets fall, and stops you from redeeming in a panic. For a lot of first-time investors, that behavioural hand-holding is worth more than a percentage point a year.

The honest question is whether you’re actually getting that service. If your “distributor” sold you a scheme five years ago and hasn’t called since, you’re paying for advice you aren’t receiving.

SEBI’s rules help you check. Under the master circular, the consolidated account statement (CAS) for each half-year ending September or March must show the actual commission paid by fund houses to distributors, in absolute rupee terms, against your investment in each scheme. The term covers direct payments and other payments such as gifts, trips and event sponsorships, and the figure is gross commission. The same half-yearly CAS must also show each scheme’s average expense ratio for the plan you actually hold, broken into investment and advisory fees, commission paid to the distributor and other expenses.

So if you hold regular plans, your September and March statements tell you, in rupees, what you paid. Put that number next to the service you got and you’ll have your answer.

Your half-yearly CAS shows the commission paid on your money in rupees. Compare that number with the help you actually got, and the direct vs regular choice usually makes itself.

Who should consider which plan

This part is opinion, based on the mechanics above.

A direct plan tends to suit you if you’re comfortable choosing schemes yourself, you understand asset allocation, you can sit through a market fall without selling, and you’re happy doing your own paperwork and reviews. It also makes sense if you pay a fee-only adviser separately. SEBI’s rules allow SEBI-registered investment advisers to use stock exchange infrastructure to buy and redeem mutual fund units directly from fund houses on behalf of their clients, including direct plans.

A regular plan can still make sense if you genuinely value a distributor’s ongoing help and you’d otherwise make expensive mistakes on your own. Paying one percentage point a year is cheaper than selling at the bottom of a crash.

What doesn’t make sense is paying for a regular plan while getting no help, or holding a direct plan you picked on a whim and never review. Both are ways of losing money quietly.

How to invest in direct plans

You can invest in direct plans through the fund house’s own website or app, or through platforms that only deal in direct plans. SEBI’s master circular calls these Execution Only Platforms (EOPs). An EOP is any digital or online platform that facilitates subscription, redemption and switch transactions in direct plans of mutual fund schemes, and it isn’t allowed to offer services for regular plans on its platform.

There are two categories. A Category 1 EOP registers with AMFI, acts as an agent of fund houses and may aggregate transactions in direct plans. A Category 2 EOP registers as a stock broker under the EOP segment of the stock exchanges, acts as an agent of the investor, and can’t act as an aggregator. Platforms run by SEBI-registered investment advisers and stock brokers for their own advisory or broking clients fall outside the EOP framework.

Whichever route you use, confirm that you’ve picked the direct plan and not the regular one before you pay. The two have separate NAVs, so the price you see is a quick check.

Switching from regular to direct

If you already hold a regular plan and want to move, you can switch to the direct plan of the same scheme. SEBI’s rules in paragraph 11.7.3 say exit load can’t be charged on a switch from a regular plan to a direct plan, or the other way round, under the same scheme. That removes one cost of moving.

The rule covers exit load only. It doesn’t say anything about tax, so check the tax treatment with a qualified tax adviser before switching a large or old holding. Also remember that once you switch, any service your distributor was providing on that holding stops, so make sure you have a plan for reviews.

Five quick checks before you choose

• Look at both plans of the same scheme and compare their expense ratios; fund houses disclose them separately for regular and direct plans.
• Open your last September or March CAS and find the commission paid on your regular-plan holdings.
• Be honest about your own behaviour in a bad market.
• If you want advice, decide whether you’d rather pay it through commission in a regular plan or as a separate fee to a registered adviser.
• Read our guide to risk management and size your exposure before you worry about the plan type; a cheap plan in the wrong fund is still the wrong fund.

If you’re building a debt allocation, the same direct-versus-regular logic applies there too. Our piece on the banking and PSU fund category is a good place to see how a debt category is defined before you compare costs.

The short version

A direct plan and a regular plan of the same scheme hold the same portfolio. The direct plan skips the distributor commission, so it carries a lower expense ratio and a higher NAV over time, and SEBI bars fund houses from charging more under any expense head in the direct plan. The regular plan pays for distribution and, ideally, advice. Neither is automatically right. What matters is whether the help you get is worth the cost you pay, and SEBI’s half-yearly CAS gives you the rupee number to judge that.

Disclaimer: This article is for educational purposes only and is not investment advice. All returns, expense ratios and values in the example are hypothetical. Mutual fund investments are subject to market risks; read all scheme-related documents carefully. Consult a SEBI-registered investment adviser and a qualified tax adviser before making investment decisions.