Direct vs regular mutual funds: what actually changes?

Direct vs Regular mutual funds: the quick comparison

The investment portfolio can be common to both plans; the main structural difference is how the plan is distributed and what recurring expenses it bears.

AMFI describes Direct and Regular as plans of the same scheme with a common portfolio and the same fund manager, while the expense ratios differ because Direct does not route distribution commission through the plan. [1]

Why does the expense ratio matter?

The expense ratio is charged against scheme assets, so it reduces the NAV and the return investors keep. The effect is recurring, not a one-time fee.

AMFI defines the total expense ratio, or TER, as the operating expenses of a mutual fund scheme expressed as a percentage of its net assets. The NAV is disclosed after deducting these expenses. [2]

AMFI's current TER disclosure page, which references the SEBI (Mutual Funds) Regulations, 2026, states that the base expense ratio of a Direct Plan must be lower because distribution expenses and commission are excluded. [3]

This is why comparing two different schemes by NAV alone is misleading. A ₹100 NAV is not automatically cheaper than a ₹500 NAV. NAV is a per-unit accounting value; the decision should be based on the mandate, portfolio, risk, performance, costs and fit for the investor's objective.

How much can a small annual cost gap matter over 20 years?

Compounding makes recurring differences larger over long horizons, but the size of the effect depends on the actual TER gap, investment path and market returns.

The table below is a DeepScreen illustration, not a forecast. It assumes a ₹10,000 monthly contribution for 20 years, month-end contributions, a hypothetical 11.5% annual return for the lower-cost plan, and the same underlying gross portfolio return before a 0.25, 0.50 or 1.00 percentage-point annual drag. Taxes, exit loads, cash-flow timing and real fund tracking are ignored.

Method note: Illustration only. The arithmetic demonstrates compounding; it does not estimate any specific scheme's future return or actual Direct-Regular TER gap.

Why do Direct and Regular plans have different NAVs?

They have separate NAVs because plan-level expenses differ even when the portfolio is common.

AMFI states that a Direct Plan has a separate NAV from the Regular Plan and that the lower expense ratio can translate into a higher value over time, all else equal. [1]

That does not mean a higher NAV is evidence that one plan is overvalued or undervalued. The NAV difference mainly reflects the history of plan-level expenses and cash flows. Performance comparisons should therefore use total returns for the same scheme, option and time period.

What are you paying for in a Regular Plan?

A Regular Plan can compensate the distribution channel that helps an investor access, service and transact in the fund; it does not create a different underlying portfolio.

AMFI's explanation is explicit that Direct plans are for investors who invest without routing the transaction through a distributor or agent, while Regular plans use that distribution channel. [1]

The useful question is therefore not 'is Direct always better?' but 'what service am I receiving for the ongoing cost difference?' Someone who can independently choose, monitor and rebalance funds may value lower plan expenses. Someone relying on a distributor for service or hand-holding should assess the quality and conflicts of that service rather than treating it as free.

Should you switch from Regular to Direct?

A lower TER can improve long-run economics, but a switch should be treated as a transaction, not a cosmetic plan rename.

Scheme documents can apply different exit-load rules to switches between plans. The exact rule is scheme-specific, so the current Scheme Information Document and account statement should be checked before acting. [4][5]

Tax treatment can also depend on the nature and timing of the transaction. DeepScreen does not provide personal tax advice; verify the current rules for your scheme and investor status before switching existing units.

A practical alternative for someone who has decided to use Direct plans going forward is to evaluate future contributions separately from existing holdings. That avoids turning a cost comparison into an automatic instruction to sell.

A five-minute Direct vs Regular decision framework

Compare the exact plan costs, the service you actually receive and the consequences of changing existing units.

• • Confirm that you are comparing the same scheme, option and growth/IDCW choice.
• • Look up the current TER for both plans on the AMC or AMFI disclosure, not an old screenshot.
• • Write down what ongoing service the distributor provides and whether you use it.
• • If considering a switch, check the scheme's current exit-load language and applicable tax treatment.
• • Judge the plan choice separately from the fund choice: a low-cost plan does not rescue a fund that is unsuitable for the intended objective.

Common mistakes when comparing Direct and Regular plans

The most common errors are comparing different schemes, treating NAV as a price-to-value ratio and ignoring the service or transaction consequences behind the plan choice.

• • Comparing Direct Growth with Regular IDCW instead of matching the same option.
• • Assuming a higher NAV means the Direct Plan is 'expensive'.
• • Using an old TER when fund expenses can change.
• • Assuming every switch has the same exit-load treatment.
• • Focusing on a small fee gap while ignoring a poor benchmark fit, excessive risk or persistent underperformance.