A direct plan and a regular plan of the same mutual fund hold exactly the same portfolio, but the direct plan has a lower expense ratio because no distributor commission is paid from it. That gap, typically around 1 percentage point a year in active equity funds, is why direct plans deliver higher returns over time.
This guide explains why the NAVs differ, shows real direct and regular expense ratios from AMFI data, and works through a 10, 20 and 30-year SIP comparison. It also covers how to buy direct plans, how to switch from regular to direct with the tax and exit-load rules, and when paying for a regular plan or an adviser can make sense.
What is the difference between a direct and a regular plan?
Since January 2013, every mutual fund scheme in India has had to offer a direct plan alongside its regular plan. Both plans invest in the same stocks or bonds, with the same fund manager and the same fund house. The only difference is how you buy and what you pay.
- Regular plan: bought through a mutual fund distributor (MFD), bank or broker acting as distributor. The fund house pays the distributor a trail commission every year, taken out of the plan’s assets.
- Direct plan: bought straight from the fund house or through a platform that does not take commission. No distributor commission is paid, so the expense ratio is lower.
Why the NAVs of direct and regular plans differ
The total expense ratio (TER) is a yearly fee deducted from the fund’s assets a little each day, so it shows up as a slightly lower NAV (net asset value per unit) rather than as a bill. A regular plan’s TER includes the distributor’s commission. A direct plan’s does not.
Both plans start at the same NAV on launch day. After that, the regular plan loses a little more to expenses every day. Over years the gap widens, which is why a direct plan’s NAV is always higher than the regular plan’s NAV of the same scheme. A higher NAV does not mean the direct plan is “costlier” to buy. What matters is how fast the NAV grows, and it grows faster in the direct plan.
SEBI’s rules require the direct plan to have a lower expense ratio, excluding distribution expenses and commission, and no commission can be paid from it. Since 1 April 2026, under SEBI’s new Mutual Funds Regulations, the TER is reported in parts: a base expense ratio (the fund house’s own fee, which is where commission sits), plus brokerage, transaction costs and statutory levies including GST.
How big is the TER gap? Real examples
AMFI publishes daily TER data for every scheme. The table below shows four widely held funds, given as examples only and not as recommendations. Figures are the full TER for 30 September 2026.
| Fund (category) | Regular plan TER | Direct plan TER | Gap |
|---|---|---|---|
| Parag Parikh Flexi Cap Fund (flexi cap) | 1.30% | 0.69% | 0.61 pp |
| HDFC Flexi Cap Fund (flexi cap) | 1.37% | 0.77% | 0.60 pp |
| SBI Small Cap Fund (small cap) | 1.59% | 0.80% | 0.79 pp |
| UTI Nifty 50 Index Fund (index) | 0.37% | 0.25% | 0.12 pp |
Source: AMFI TER data, 30 September 2026. “pp” means percentage points.
Large funds tend to have smaller gaps, because SEBI’s expense caps fall as a fund grows. Across the wider market, the gap is bigger. Taking 183 active equity schemes in AMFI’s September 2026 data (large, mid, small, flexi, multi, large and mid, value, contra, dividend yield and focused funds), we worked out a median TER of 2.21% for regular plans and 1.07% for direct plans. The median gap was 1.11 percentage points.
Index funds show the smallest gaps, because their total costs are low to begin with. The bigger the TER, the more a regular plan costs you.
Returns comparison: a 10, 20 and 30-year SIP
Suppose Arjun invests ₹10,000 a month through a SIP in an active equity fund. To keep it simple, assume the portfolio earns 12% a year before expenses, the direct plan’s TER is 1.0% and the regular plan’s TER is 2.0%. That 1-point gap is close to the median found above. The 12% is an assumption, not a forecast.
The working: net annual return is 11% for the direct plan and 10% for the regular plan. Converted to a monthly rate, i = (1 + annual rate)1/12 − 1, which gives 0.8735% for the direct plan and 0.7974% for the regular plan. With each instalment paid at the start of the month, the future value is FV = 10,000 × [((1 + i)n − 1) ÷ i] × (1 + i), where n is the number of months.
| Period | Total invested | Direct plan (11% net) | Regular plan (10% net) | Extra with direct |
|---|---|---|---|---|
| 10 years | ₹12 lakh | ₹21.24 lakh | ₹20.15 lakh | ₹1.10 lakh (5.4%) |
| 20 years | ₹24 lakh | ₹81.56 lakh | ₹72.40 lakh | ₹9.16 lakh (12.7%) |
| 30 years | ₹36 lakh | ₹2.53 crore | ₹2.08 crore | ₹44.90 lakh (21.6%) |
The gap grows much faster than the time. Over 10 years, direct is about 5% ahead. Over 30 years, it is more than a fifth ahead, because the saved fee itself compounds. Our article on the power of compounding explains the effect.
For a fund with a smaller gap, like the 0.60-point gap of HDFC Flexi Cap Fund above (regular 1.37%, direct 0.77%), the same SIP at 12% gross gives a difference of about ₹67,000 after 10 years, ₹5.81 lakh after 20 years and ₹29.42 lakh after 30 years. To run your own direct vs regular comparison, put the two net rates into our SIP calculator one after the other.
How to buy direct mutual funds
You need to be KYC-compliant (PAN, Aadhaar-based or in-person verification, and a bank account). Then choose any of these routes:
- The fund house’s website or app. Every AMC sells its own direct plans online. This works well if you hold only one or two fund houses.
- MF Central. A common platform run by the registrars CAMS and KFintech, set up under SEBI’s direction. You can view all your holdings across fund houses, start SIPs, invest lump sums, redeem and switch. You choose direct, or enter a distributor’s ARN code for regular.
- MF Utility (MFU). An industry platform where you open a free Common Account Number (CAN) online and then transact in direct or regular plans of many fund houses from one login.
- Investment apps and brokers. Many apps offer direct plans. Before you invest, check that the scheme name on the order and on your account statement includes “Direct Plan”.
The order goes into the same scheme and the same portfolio either way. Your consolidated account statement (CAS) from CAMS, KFintech or the depositories shows the plan name, so you can confirm which plan you own.
Switching from regular to direct: tax and exit load
A switch from the regular plan to the direct plan of the same scheme is treated as a sale of the regular units and a fresh purchase of direct units. That has three consequences.
1. Capital gains tax applies
For equity funds, gains on units held for 12 months or less are short-term and taxed at 20%. Gains on units held longer are long-term: the first ₹1.25 lakh of long-term gains in a financial year is tax-free, and the rest is taxed at 12.5%. Budget 2026 did not change these rates. For debt funds bought on or after 1 April 2023, gains are taxed at your slab rate whatever the holding period.
Example: Suppose Meera’s regular-plan units are worth ₹6 lakh, bought for ₹4 lakh more than 12 months ago, and she has no other long-term gains this year. Gain = ₹2,00,000. Taxable after the exemption = ₹2,00,000 − ₹1,25,000 = ₹75,000. Tax = 12.5% × ₹75,000 = ₹9,375, plus 4% health and education cess = ₹9,750 (surcharge, if applicable, is extra).
If she instead switches units carrying ₹1.25 lakh of gain before 31 March and the rest after 1 April, both tranches fall within that year’s exemption and the tax is nil, provided she has no other long-term equity gains in either year. Our guide to reducing capital gains tax covers this gain-harvesting approach.
2. No exit load on the switch itself
Following an AMFI communication dated 9 April 2025, fund houses stopped charging exit load on switches from a regular plan to the direct plan of the same scheme. HDFC Mutual Fund’s addendum, for example, applied this from 21 April 2025. However, exit load still applies if you redeem or switch out of the scheme within the exit-load period, counted from your original purchase date. Switching to a different scheme counts as a normal redemption, with exit load if applicable.
3. Practical steps
- Stop new SIP instalments in the regular plan and start the same SIP in the direct plan. This costs no tax.
- List existing units by purchase date. Switch units held over 12 months first, and leave short-term units until they cross 12 months.
- Spread large switches across financial years to use the ₹1.25 lakh exemption each year.
- ELSS units cannot be switched until their 3-year lock-in ends.
- Place the switch through the AMC, MF Central or MFU. A stamp duty of 0.005% applies to the purchase leg, which is ₹30 on ₹6 lakh.
When a regular plan can be worth it
The commission in a regular plan pays for a service. Whether that is good value depends on what you get and how much money you have invested.
- Behaviour coaching. A distributor who stops you from selling in a crash or chasing last year’s top fund can be worth far more than 1% a year. Our piece on avoiding losses in the stock market shows how costly those mistakes are.
- Paperwork and service. Nominations, KYC updates, transmission after a death and consolidating old folios can be hard for some investors, particularly older ones.
- Small portfolios. At a 1.11-point gap, a ₹5 lakh portfolio pays about ₹5,550 a year in extra expenses. That can be less than a fee-only adviser charges. At ₹50 lakh, the same gap costs about ₹55,500 a year, and paying for advice separately usually works out cheaper.
If you choose your own funds, review them yourself and don’t need hand-holding, a regular plan gives you nothing extra for the higher cost.
SEBI RIA vs mutual fund distributor
There are two kinds of professional help, and they are paid differently.
- Mutual fund distributor (MFD): registered with AMFI and holds an ARN (AMFI Registration Number). Earns commission from the fund house through regular plans, so you pay nothing upfront, but the cost is inside the TER every year.
- SEBI-registered investment adviser (RIA): registered with SEBI and paid only by you. RIAs recommend direct plans. Under SEBI’s circular of 8 January 2025, an RIA can charge either up to 2.5% of assets under advice a year or a fixed fee of up to ₹1,51,000 a year per family. These limits apply to individual and HUF clients.
Check an RIA’s registration on SEBI’s website and an MFD’s ARN on AMFI’s website before you engage either.
Direct vs regular plan: comparison table
| Feature | Direct plan | Regular plan |
|---|---|---|
| Portfolio and fund manager | Same | Same |
| Distributor commission | None | Paid yearly from the TER |
| TER, active equity (median, Sept 2026) | 1.07% | 2.21% |
| NAV | Higher, grows faster | Lower, grows slower |
| Where to buy | AMC, MF Central, MFU, direct-plan apps | Distributor, bank, broker acting as MFD |
| Advice included | No (pay an RIA separately if needed) | Some service from the distributor |
| Tax | Same rules | Same rules |
| Best suited to | Investors who choose and review funds themselves, or who use a fee-only RIA | Investors who value hands-on help, especially with smaller portfolios |
Common mistakes
- Thinking a lower NAV is cheaper. NAV level tells you nothing about value. Compare the TER.
- Switching everything at once without checking tax. Short-term units and large gains can produce an avoidable tax bill.
- Going direct, then trading too much. Saving 1% a year in fees is quickly lost by panic selling or frequent fund changes.
- Not checking the plan name. Some platforms default to regular plans. Your CAS shows which plan you actually own.
FAQ
Is a direct plan riskier than a regular plan?
No. Both plans hold the same portfolio, so market risk is identical. The only risk with direct plans is choosing badly without advice, which you can handle by doing your own research or hiring a SEBI-registered adviser.
How much higher are direct plan returns?
Roughly by the TER gap each year. For active equity funds, the median gap in AMFI’s September 2026 data was about 1.1 percentage points. In our example, a ₹10,000 monthly SIP ended up ₹9.16 lakh higher after 20 years with a 1-point gap.
Is there an exit load when switching from regular to direct?
Not within the same scheme. Fund houses stopped charging it in April 2025 after an AMFI communication. Capital gains tax still applies, because the switch counts as a sale.
Can I hold both direct and regular plans of the same fund?
Yes. Many investors stop new regular-plan SIPs, start direct-plan SIPs and move old units over gradually as they become long-term and fit within the yearly exemption.
Do ETFs have direct and regular plans?
No. ETFs trade on the exchange as a single class of units, and you pay brokerage instead. Our ETF vs mutual fund guide compares the two routes.
Ramesh Iyer is the pen name of the founder and editor of StocksInfo.AI, an independent investor in Indian equities, mutual funds and ETFs since 2020. Every article is researched from primary sources such as SEBI, AMFI, NSE and the Income Tax Department, and fact-checked before publishing. About us