When SEBI introduced direct plans in 2013, it was one of the most investor-friendly regulatory changes in Indian mutual fund history. Direct plans have no distributor commission, making their expense ratios 0.5–1.5% lower than regular plans. That sounds small. Over 20 years, it is transformative.
The numbers
Assume a ₹10,000 monthly SIP into an equity fund earning 12% gross return per year:
| Plan | Expense Ratio | Net Return | 20-Year Corpus | |---|---|---|---| | Direct | 0.5% | 11.5% | ₹91.6 lakh | | Regular | 1.5% | 10.5% | ₹76.3 lakh | | Regular (high commission) | 2.0% | 10.0% | ₹69.7 lakh |
The gap between a direct plan and a high-commission regular plan: ₹21.9 lakh on a total investment of ₹24 lakh over 20 years. The commission consumed nearly an entire year of investment corpus.
Why people still use regular plans
- Convenience: Regular plans through banks and distributors involve less friction. The distributor handles paperwork.
- Advice: Some investors genuinely value the guidance of a distributor — even if that guidance is inconsistent with their interests.
- Inertia: Many investors are unaware of the difference or find switching intimidating.
How to switch to direct plans
Switching is simpler than most people expect:
1. Log in to the fund house's website or app directly, or use an RIA-recommended direct plan platform (MF Central, Zerodha Coin, Groww direct, Kuvera). 2. Submit a switch request from regular to direct within the same fund. This is a non-taxable event only if you are redeeming from a regular plan and reinvesting in direct — technically it is a redemption and fresh purchase, so LTCG/STCG applies. 3. Start new SIPs in direct plans. Do not redeem existing holdings with significant gains just to switch — the tax cost may outweigh the expense ratio benefit for several years.
When a fee-only advisor makes sense
If you pay a SEBI-registered investment advisor (RIA) a flat fee (₹10,000–50,000/year) for portfolio advice and invest in direct plans, you likely come out ahead versus a regular plan distributor — especially if your portfolio exceeds ₹25 lakh.
Conclusion
Direct plans are unambiguously better for investors who are self-directed or use a fee-only advisor. The 20-year cost difference is not marginal — it is life-changing at scale.