If you’ve ever tried to invest in mutual funds in India, chances are you’ve stumbled upon the debate of direct vs regular mutual funds.

And if you’ve wondered, “Why are there two versions of the same mutual fund scheme?”, trust me, you’re not alone.

Most investors assume it’s just a small technicality. But the truth is, the main difference between direct and regular plans has a long-term impact on your financial goals and expected return as a disciplined investor.

As a fee-only financial advisor, I often meet people who say:

“I wish someone explained this to me 10 years ago — I would have saved lakhs in commission.”

This blog is exactly that explanation – simple, transparent, and unbiased.

Let’s break it down.

What are Direct Mutual Funds?

A direct mutual fund (or direct plan) is when you invest directly with the fund house, the AMC (Asset Management Companies), without any middleman.

You can invest in direct plans online, through AMC websites, MF Utility, MF Central, or even through individual SEBI-registered advisors (RIAs) who do not earn a commission from your investments.

In a direct mutual fund plan, the expense ratio/ cost charged by the fund is lower, resulting in a lower expense ratio than regular plans.

And since the expense ratio in direct is lower, investors often end up with higher returns than regular plans over the long run.

In short:

• No distributor involved
• No commissions
• Direct plans have a lower expense
• Returns tend to be higher than the regular version of the same scheme

This is why, as a fee-only financial advisor, I suggest direct mutual funds as a must-have route for investors for financial planning and long-term wealth building.

What are Regular Mutual Funds?

A regular mutual fund (or regular plan) is when you invest through a mutual fund distributor, such as:

• A broker
• An agent
• A bank relationship manager
• An online platform that earns via commission

In a regular mutual fund plan, the fund house pays a commission to the distributor for facilitating your investment.

This commission is charged by the fund and included in the total expense ratio (TER).

This results in:

• A higher expense ratio
• Lower returns compared to direct
• Commission is paid every month, often increasing as your portfolio grows

Remember: the plans of mutual funds (portfolio, fund manager, risk levels) are identical between the two.
The only difference is the cost, which is the key driver of long-term return differences.

Key Difference Between Direct and Regular Mutual Fund

When investors first hear “direct” and “regular,” it almost sounds like two totally different products. But in reality, they’re the same mutual fund scheme, managed by the same fund managers, holding the same portfolio of stocks or bonds. The only real difference lies in how you invest and how much you pay for it.

Here’s a simple explanation to help you decide:

1. Expense ratio

Direct Plan:

When you choose a direct plan, you’re investing without a middleman. No distributor, no brokerage.
Because of that, the AMC doesn’t have to pay commissions, so the cost charged to you (the expense ratio) is lower.

Think of it like buying something directly from the manufacturer instead of through a retailer — fewer layers, fewer costs.

Regular Plan:

In a regular plan, the distributor earns a commission every year for bringing you into the fund.
That commission is quietly added to the fund’s expense ratio, which means:
You pay a little more every year without seeing the bill.

This extra cost is tiny in the short term, but over 10–15 years, the difference becomes huge.

2. Returns impact

Since both plans invest in the same underlying portfolio, your returns should be identical.
But because direct plans have a lower expense ratio, they naturally leave you with higher returns — even though everything else is the same.

Direct Plan:
Lower costs → more of the returns stay with you → your long-term wealth compounds faster.

Regular Plan:
Higher costs → a part of your returns goes towards distributor commissions → your wealth grows comparatively slower, even though the fund is performing the same.

A 1% difference in return might sound like nothing today, but over many years, it can mean lakhs of rupees.

3. Net Asset Value (NAV)

Many investors get confused when they see that the direct plan NAV is higher than that of the regular plan.

Here’s the simplest explanation:

Direct Plan NAV:
Because the fund is not deducting distributor commissions, it retains more value in each unit — leading to a naturally higher NAV.

Regular Plan NAV:
Regular plans deduct the commission from the fund’s daily expenses, which slightly reduces the NAV every day.

A higher NAV doesn’t mean direct plans are “expensive.” It simply reflects the lower costs built into the plan.

4. Investor responsibilities / Work with SEBI RIA

Direct Plan:
You’re in charge. That means you decide:

• Which fund to buy
• When to switch
• How to rebalance your portfolio
• Whether the fund still matches your goals

If you’re confident, disciplined, and enjoy managing your money, you’ll love direct plans.

And, if you are not confident managing yourself and don’t want to pay commission as well, as you now know the negative impact of a regular plan for your financial future, then you must seek a SEBI-registered fee-only advisor’s advice.

Regular Plan:
Here, the distributor guides you, at least in terms of theory. This can be helpful for beginners, but remember: this guidance is linked to commissions. 

So while you do get support, it’s important to know that you’re paying for it through the expense ratio. In the beginning, it may feel convenient, but later reversing it comes at a cost.

5. Suitability considerations

Direct plans are usually better for:

• DIY investors
• People who like understanding their finances
• Investors working with fee-only advisors (completely unbiased guidance)

Regular plans are better for:

• Beginners who want someone to assist them
• Investors who don’t wish to manage or monitor their own portfolio

There’s no right or wrong choice — just what fits your comfort level, financial discipline, and long-term goals.

Behavioural Aspect Most Investors Miss

Most people focus only on direct vs regular cost differences. But the real gap often lies in behaviour, not the plan type.

Direct plans require discipline, self-review, and periodic rebalancing

When you invest in direct plans, you must periodically check:

• Are your financial goals on track?
• Does your asset allocation need a change?
• Is your equity-to-debt ratio still right?

Many investors pick funds emotionally or based on short-term trends

You’ve probably seen this:

• A friend says, “This equity fund is doing great!” → You invest
• A YouTube video talks about hybrid funds → You switch
• Market falls → Panic selling

This is where long-term returns take the biggest hit, and a financial advisor’s role comes into play not just as an advisor but also as an accountability partner.

Why investor behaviour, not plan type, often determines outcomes

A disciplined investor often earns more, even in a regular plan, than someone who mismanages a direct plan.

How a fee-only advisor helps in avoiding behavioural mistakes

Since a fee-only advisor earns no commission, they help you:

• Choose suitable mutual fund options
• Avoid over-diversification
• Rebalance portfolio systematically
• Manage emotional decisions

In short, good behaviour + low costs = better outcomes.

Benefits of Direct vs Regular Mutual Fund

Benefits of Direct Plans

• Lower expense ratio
• Higher returns over long periods
• Transparency
• No conflict of interest
• Ideal for informed, disciplined investors

Benefits of Regular Plans

• Handholding for beginners
• Guidance from a distributor (though commission applies)
• Helps people who prefer push-based reminders or support

But remember: regular plans have a higher cost, and commissions keep increasing as your mutual fund investments grow.

Hidden Risks in Direct Plans vs Regular Mutual Fund

Risks in Direct Plans

• Wrong fund selection
• No accountability
• Emotional decisions
• Difficulty understanding regular and direct mutual differences
• Not knowing when to exit a scheme

Risks in Regular Plans

• Long-term commission outflow
• Lower returns due to higher costs
• Investors may mistakenly assume distributor advice is unbiased
• You may invest in unsuitable funds because regular plans offer an incentive structure to the intermediary

As your portfolio grows, the commission can become enormous, often “lakhs every year”.

Framework to Decide What’s Right for You

If you’re stuck choosing between direct or regular, this will help you out:

Assess financial knowledge – Do you understand mutual funds in India, NAV, categories like equity funds, debt funds, hybrid funds? Knowing these are must.

Understand personal biases – Are you prone to reacting emotionally to market movements?

Compare real long-term cost impact – Even a difference of 1% in total expected return accumulates massively.
A regular plan often ends up costing more than expected when you factor in the compounding cost.

Determine need for objective advice – Do you want unbiased guidance that is not influenced by commission? A fee-only advisor helps here.

Related Reads: “How to Choose a Financial Advisor in India?”

Which Is Better: Direct or Regular?

Not a one-size-fits-all decision. Let’s keep it simple.

Direct Plan Is Better For:

• DIY investors
• People with high financial awareness
• Investors working with a fee-only financial advisor
• Anyone who wants to save on commission and get higher returns than regular

Regular Plan Is Better For:

• People who need constant handholding
• Those who prefer guidance from a mutual fund distributor
• Investors who may not have time to review portfolios

But here is the key:
If you want professional help without giving away lakhs of commission, a fee-only advisor + direct plan is the most economical long-term combination.

A regular plan’s commission reduces your returns every year and grows as your portfolio grows, as the commission is paid on your portfolio size and not on capital gain.

Many investors unknowingly pay:

₹50,000

₹1,00,000

Even ₹3–5 lakhs per year

I personally have met many people who are paying about ₹10-₹15 lakhs p.a. in commission because their portfolio size is larger. Just because they opted for the regular plan, and now moving to a ₹10 – ₹15 Cr. portfolio is going to be difficult.

That’s why understanding the difference between direct and regular is essential and making a conscious decision is important.

With a fee-only advisor, the advice and the product are completely separated, giving you transparency and unbiased guidance.

Conclusion

Choosing between a direct mutual fund and a regular plan doesn’t have to be confusing.

Here’s the honest truth:

• A direct fund gives you higher returns, a lower expense ratio, and transparency.
• A regular fund gives you support, but you pay for it every year through a higher expense ratio.
• The difference in expense ratio ultimately determines how much wealth you create.
• Behaviour matters more than plan type — but costs matter too.

If you’re someone who wants clarity, transparency, and no conflict of interest, pairing direct plans offer with guidance from a fee-only financial advisor gives you the best of both worlds:

Unbiased advice + no commissions + better long-term outcomes.

No matter which route you choose, direct and regular plans are both just tools.
What matters is choosing the one aligned with your behaviour, your comfort level, and your financial goals.

Your wealth deserves intentional choices, not accidental commissions.