Direct vs Regular Mutual Fund: Meaning, Differences & Which one is Better?

Mutual funds are an investment vehicle that pools money from multiple investors to invest in various assets, such as stocks, bonds, debentures, and market instruments, both money market and capital market. Investors in a mutual fund scheme receive units equivalent to their investment, which can be redeemed as needed or according to the terms and conditions of the mutual fund scheme. The value of these units fluctuates based on the mutual fund scheme's performance.

You can invest in a mutual fund scheme in two ways: directly investing through an AMC or an intermediary (regular plan). However, many people still get confused between the Direct plan and the Regular plan before investing in the 68 trillion Indian Mutual Fund Industry. Here, we will dive deeper into direct vs regular mutual funds, key differences, benefits and much more. 

What is a Direct Mutual Fund?

A Direct mutual fund is a scheme in which you invest directly through an AMC (Asset Management Company) that manages the mutual fund. Since you purchase the plan directly from the fund houses, no brokers are involved; hence, no commission is required to be paid. 

As a result, you can gain higher returns from direct mutual funds as they carry lower expense ratios due to no commissions being associated with these funds.

What is a Regular Mutual Fund?

A regular mutual fund is a plan that involves an investment with the help of an intermediary, such as a broker or a mutual fund distributor. The intermediary must have an ARN (AMFI Registration Number) that authorises them to deal with mutual funds. 

These intermediaries are crucial in spreading financial literacy among investors and helping them understand every aspect of a mutual fund scheme. Regular mutual funds attract higher expense ratios, a proportion of which is paid to the distributor or broker as a trail commission. 

What is Expense Ratio?

The Total Expense Ratio (TER) is a fee charged by Asset Management Companies (AMCS) for managing investors' money. This fee covers various costs, including investment management, advisory fees, trustee fees, marketing, selling expenses, and distributor commissions, and is calculated against the fund's daily average net assets. The Net Asset Value (NAV) is determined each day after these expenses are accounted for, making the investor bear the costs.

Direct Plans have a lower expense ratio than regular plans as they don't have distribution expenses and commissions. According to ACE MF data, the expense ratio difference between direct and regular plans for all equity-oriented schemes in April 2025 ranged from 30 to 190 basis points (bps), where 100 bps equals 1 per cent. 

How Returns Differ Between Direct & Regular Funds

A direct mutual fund has a low TER (total expense ratio), resulting in higher NAV and ultimately higher returns. On the other hand, there is an intermediary associated with a regular plan, and the mutual fund house gives the intermediary a specific commission to sell their mutual fund schemes. Then, the fund house charges a higher TER (Total Expense Ratio) from investors, which results in lower NAV and ultimately lower returns.  

Example:

Suppose you want to purchase a mobile phone manufactured by X company. This company manufactures this mobile phone in its factory using its in-house parts. The final cost of the mobile phone is Rs 20,000. Now, an intermediary acts as an ‘agent’ or ‘middleman’ and delivers the mobile to people like you and me. We, in turn, pay him Rs 22000. The difference (Rs 2000) between the two prices is what the agent earns. 

Now replace the X Company with the AMC, the mobile phone with a fund/scheme, and the agent as a mutual fund distributor. The mutual fund distributor is like the middleman between the AMC and the investor. If a mutual fund distributor approaches you and sells you a mutual fund, he is selling you a ‘regular plan’, which means he is entitled to receive a commission from the AMC for selling this fund to you. 

The middleman also gives you his opinion about the mutual fund scheme you will invest in and helps you choose the best scheme for your needs and goals. In the end, you pay more for that investment scheme, but also get the expert services of the middleman.

Impact of Expense Ratio on Returns 

For instance, you invest Rs. 25000 monthly through SIP in a mutual fund scheme for 30 years with an expected rate of return of 12%. The accumulated corpus would be Rs in a regular plan where you are paying a 1.5% expense ratio. 6.3 crore. However, with the direct plan, where the expense ratio is 1%, this accumulated amount would be 7.8 crore. The 0.5% difference in expense ratio could cost 1.5 crore, which is approximately 24% more than the regular plan.

Difference between Direct and Regular Plans

Here are some of the key differences between a direct and a regular mutual fund scheme:

Intermediary 

In a direct mutual fund, there are no intermediaries between the fund house and the investor. You deal directly with the AMC. On the other hand, in a regular plan, there is an intermediary between the AMC and the investor. It can be a broker, a mutual fund distributor, or a bank's relationship manager.

Expense Ratio

A regular plan's expense ratio is always higher than the direct plan of the same fund. This is because the fund house must also pay commissions to its intermediaries. Direct plans exclude commissions and distribution expenses from investor costs, leading to lower expense ratios. As a result, direct plans offer higher returns than regular plans.

NAV (Net Asset Value): 

A mutual fund's net asset value (NAV) is directly affected by the scheme's total expense ratio (TER). Regular plans have a higher total expense ratio than direct plans, so the NAV (Net Asset Value) of a regular fund is lower than that of a direct plan.

Convenience:

Direct mutual fund plans are considered more convenient than regular mutual funds. This is mainly because no intermediary is associated with them, and the investor can decide independently. 

However, convenience entirely changes if the investor is not financially literate or has no idea about mutual funds. A regular plan can be more convenient for the investor in such cases.

Returns

Even a slight difference in expense ratio can significantly impact long-term returns. For instance, if you invest ₹25,000 monthly for 30 years through SIP, assuming an annual return of 12% for a direct plan and 10.5% for a regular plan (after accounting for expenses), the accumulated corpus would be:

Direct Plan  ₹7.8 crore

Regular Plan ₹6.3 crore

This shows that a 0.5% difference in cost can result in a ₹1.5 crore shortfall, which is almost 25% lower in the regular plan over time.

A quick comparasation between direct and regular plans.

Benefits of Direct Mutual Fund

Here are some of the benefits of investing in direct mutual funds:

Lower Expense Ratio:

A direct mutual fund's TER (Total Expense Ratio) is lower than that of a regular mutual fund scheme. This is mainly because there is no intermediary between a fund house and an investor; therefore, AMCS do not have to provide trail commissions to intermediaries.

Higher NAV:

A lower expense ratio leads to a higher NAV, as the expense ratio is directly calculated on the NAV. A mutual fund's net asset value is the per-unit price of the total assets held by the scheme. In simple terms, it is the ratio of the total number of outstanding units to the current market value of a fund's assets.

Higher Returns: 

The most significant advantage of investing in a direct mutual fund is earning higher returns than a regular fund. As no intermediary is associated with it, there is no trial commission, resulting in higher returns.

Benefits of Regular Mutual Fund

Here are some of the benefits of investing in regular mutual funds:

Expert Advice: 

If you are not sufficiently knowledgeable about finance and investments, you can consider investing in mutual funds through an MFD (mutual fund distributor). A well-experienced and informed MFD can help you understand mutual funds thoroughly and provide valuable insights.

Goal-Based Planning: 

Usually, when investing through an Investment advisor or an MFD, they ask you about your financial goals. Accordingly, they will suggest a suitable mutual fund scheme based on your goals, risk appetite and other factors.

Regular Monitoring: 

If you are investing in a direct plan, log into your account and track your investment. In the case of a regular fund, your investment advisor or MFD will review your portfolio on your behalf and suggest changes if needed.

Direct vs Regular Mutual Fund - Which one is Better?

Any mutual fund scheme allows investors to invest in Direct and Regular plans. If you have a basic idea of mutual funds and how they work, you can research various aspects and decide according to your goals and risk appetite. 

In such a scenario, direct investment can be your best option as it removes the complexity of dealing with an intermediary. Moreover, you can directly start investing and monitor your portfolio.

If you are unaware of mutual fund investment options and do not have an eagle's eye for the market, don't hesitate to get an intermediary's help. AMFI data shows 55% of investments still come through the regular plan. An intermediary can be a mutual fund distributor, investment advisor or your bank's relationship manager. A well-informed intermediary can help you plan your finances accordingly and help you make an informed decision.

Conclusion

By now, you will have some clarity on direct vs. regular mutual funds. As there is no commission associated with it, investing in a direct fund is quite lucrative and helps you to maximise your mutual fund gains. However, if you do not have adequate knowledge of mutual funds, you can consider investing in a regular plan through an intermediary.

Whether a direct plan or a regular one, mutual fund investment carries a moderate to very high risk. Hence, stay informed and updated about the current market scenario.

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