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Direct vs Regular Funds

Here's a detailed comparison of returns and expense ratios of 1,500+ mutual fund schemes.

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Direct vs Regular Mutual Funds

When you invest in mutual funds, you usually get two options to choose from: Direct Plan and Regular Plan. Both offer access to the same fund and fund manager, but the way you invest and the charges you pay are different. These differences can affect your overall returns. Knowing how each plan works can help you make better financial decisions.

What are Direct Funds?

Direct mutual funds are investment plans that you purchase directly from the mutual fund company, without involving any intermediaries such as brokers, financial advisors, or distributors.
Because no third-party commission is involved, the expense ratio in a direct plan is significantly lower compared to its regular counterpart, regular mutual funds. This lower cost directly translates to higher returns for investors over time.
Let's understand this with a clear example.
Suppose you choose to invest in the Union Focused Fund option. If you opt for the Direct Plan, the expense ratio is approximately 1.46%. On the other hand, the Regular Plan for the same scheme would carry an expense ratio of 2.49% or more, due to the inclusion of distributor commissions.
Now, both plans may earn a gross return of 12% annually. However, after accounting for expenses:
  • The Direct Plan might deliver a net return of 10.54% (12% - 1.46%).
  • The Regular Plan may offer only 9.51% (12% - 2.49%).
This 1.03% difference might not seem huge initially, but over several years, the compounding effect turns it into a significant gap in your overall wealth.
So, with a direct plan, you retain more of your investment returns simply by avoiding distribution fees.

What are Regular Funds?

Regular mutual funds are investment plans that you buy through intermediaries such as brokers, financial advisors, or relationship managers. These third-party agents act as a bridge between the investor and the asset management company (AMC).
In return for their services, they receive a commission from the AMC. This commission is embedded within the fund's expense ratio, which means regular plans usually carry a higher cost compared to direct plans.
Now, let's understand this with an example.
Suppose you choose to invest in a fund through your bank's relationship manager. You don't pay the advisor anything directly. Instead, the AMC pays your bank a small percentage as commission, which gets deducted from the fund's returns before they reach you. Over time, this higher expense eats into your total returns.
Even though both regular and direct plans of the same scheme invest in the same portfolio, the net return to you will differ. In a regular plan, because of the higher expense ratio, your long-term gains will be slightly lower compared to a direct plan.
So, while regular funds offer the comfort of advisory and handholding, it comes at a cost that adds up over the years.

Direct vs Regular Funds Comparision

Let us compare schemes to understand how both categories of mutual funds perform over the years. Union Focused Fund, a focused equity mutual fund launched on 13 August 2019, is open to both SIP (from ₹500) and lumpsum investments (from ₹1,000).
As of June 2025, its NAV is ₹26.06 and its Asset Under Management (AUM) is ₹408.33 cr.
Now, let's see how the Direct plan fares compared to the Regular plan (approximate).

MetricDirect PlanRegular Plan*
Expense Ratio as of June 20251.46%2.49%
1 Yr Returns1.48%0.49%
3 Yr Returns64.62%59.75%
5 Yr Returns154.99%143.10%

*The Regular plan numbers factor in distributor commissions and higher expense ratios that reduce the overall returns.
This comparison shows that while the returns might seem close, over time, even a single-percent difference can lead to overall less wealth accumulation.

SIP Investment

Assume ₹10,000 is invested monthly through a Systematic Investment Plan (SIP) for 5 years in the Union Focused Fund.
One investment is made in the Direct Plan and the other in the Regular Plan. The calculations are based on actual returns recorded over a 5-year period as per the scheme data.

Plan TypeSIP AmountTotal InvestedCAGRApprox. Maturity Value
Direct Plan₹10,000₹6 Lakh20.59%₹10.01 Lakh
Regular Plan*₹10,000₹6 Lakh19.86%₹9.84 Lakh
Difference in Returns--0.73% / year₹15 K

The Regular Plan includes higher expense ratios and commission charges, leading to relatively lower compounding returns over time. The Direct Plan, with a lower expense ratio, offers better long-term wealth accumulation under identical investment conditions.

Lumpsum Investment

Now, assume a one-time investment of ₹1,00,000 is made and held for 5 years in the Union Focused Fund. One investment is made in the Direct Plan and the other in the Regular Plan. The final values are based on actual 5-year returns from each plan.

Plan TypeLumpsum AmountCAGRApprox. Maturity Value
Direct Plan₹1 Lakh20.59%₹2.55 Lakh
Regular Plan*₹1 Lakh19.86%₹2.47 Lakh
Difference in Returns-0.73% / year₹8 K

The Regular Plan reflects reduced performance due to higher expense ratios and distributor commissions. The Direct Plan retains more of the return, resulting in a higher maturity value for the same investment amount.

Debunking Common Myths Around Direct Funds

Let's break some common myths that often stop investors from choosing direct mutual funds.


1. Direct Plan NAVs Are Higher, So They Are More Expensive

When you see that a direct plan’s NAV is higher than a regular plan’s, it does not mean it's more expensive. This simply reflects the lower expense structure, as fewer fees are deducted from the investment.

Regular plans include distributor commissions in their daily NAV, so their NAV is lower. Direct plans skip those fees, allowing higher growth. What matters is how much you earn overall, not the upfront NAV number.


2. Direct Plans Are Managed Differently or Are Inferior to Regular Plans

Both direct and regular versions of a mutual fund are run by the same fund manager, follow the same investment strategy, and hold the same portfolio.

The only real difference is cost: regular plans pay a commission to distributors, which makes their expense ratio higher. Direct plans skip that extra fee, so you get the exact same fund performance for free.


3. I Need to Invest Only Through AMC Websites to Go Direct

You don't need to visit AMC websites to invest in direct plans. Dhan lets you do it all in one app.

You can pick any direct mutual fund from over 1,500 schemes, set up SIPs (daily, weekly and monthly) or make lump-sum investments, enable AutoPay, track performance, and view portfolio insights (all at zero commission). It is the easiest way to enjoy attractive returns with no extra hassle or downloads.


4. The 1% Cost Difference Is Too Little to Matter

Even a 1% difference in fees might seem tiny, but it quietly chips away every year.

For example, if two funds both return 10% a year, a 1% higher expense means you only get 9% net instead of 10%. That difference compounds, meaning over 5 years, a ₹1 lakh investment could grow to around ₹1.59 lakh compared to ₹1.65 lakh, resulting in an ₹6,000 shortfall. All from that 1% fee. Small fees really do matter.


5. Direct Plans Are Only for Experienced Investors

This is one of the biggest misconceptions. You don’t need to be a market expert to invest in direct mutual funds. In reality, all you need is clarity on your investment goal, a basic understanding of how SIPs work, and a few essential documents like PAN, Aadhaar, and a bank account.

Dhan makes it even easier for first-time investors. With a clean interface, pre-filtered fund categories, calculators, and goal-based suggestions, even beginners can invest in direct plans without confusion. You are in control and can save on commissions while growing your funds.


Will the Compounding Remain the Same?

Yes, the compounding mechanism is mathematically the same for both direct and regular mutual fund plans. Your earnings generate more earnings over time. However, what really changes is how much of your funds gets the full benefit of compounding.

In direct plans, the expense ratio is lower because there are no distributor commissions. That means more of your returns are reinvested each year, boosting your overall growth steadily.

In contrast, regular plans have higher annual charges. These charges may seem small, but they reduce the amount being reinvested. Over 5, 10, or 15 years, this creates a compounding gap that can cost you lakhs in potential returns.

So while compounding itself doesn’t change, direct plans give you a head start by letting more of your money stay invested and grow. That’s the power of lower costs over time.


To Conclude

Direct mutual funds give you comparatively higher returns because they charge lower fees. Regular funds include advisor commissions, so you earn a bit less. If you’re comfortable investing on your own, direct plans are better. Over time, even small savings in fees can make a big difference to your wealth.


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