Regular vs direct mutual fund plans, and how advisers and distributors are paid
Short answer. Every mutual fund scheme in India comes in two plans that hold the same portfolio under the same fund manager. The regular plan's expense ratio includes the distributor's commission; the direct plan's does not, so its NAV grows slightly faster every year. On a ₹10,000 monthly SIP over 20 years, an assumed cost gap of one percentage point leaves the regular plan about ₹10.79 lakh — 12% — behind. That gap is the price of the distributor's service. Whether it is worth paying depends on what you receive for it.
Disclosure. Astra Wealthcraft Advisory LLP is a tax and compliance practice. It is not regulated by SEBI and does not provide investment advice or research. It sells no mutual funds and earns no commission or referral fee from any fund house, which is why this article names no scheme.
What is the difference between a regular and a direct mutual fund plan?
A direct plan is the version of a scheme you buy from the fund house without a distributor; a regular plan is the version bought through one. SEBI required every scheme to offer a direct plan from 1 January 2013, with a lower expense ratio that excludes distribution expenses and commission, and a separate NAV.
| Regular plan | Direct plan | |
|---|---|---|
| Bought through | A distributor with an AMFI registration number (ARN): an individual agent, a bank, a broker or a platform | The fund house, or a platform or registered adviser that offers direct plans |
| Portfolio and fund manager | Identical | |
| Expense ratio | Higher: includes the distributor's trail commission | Lower: no commission may be paid from it |
| NAV | Lower, and the difference widens every year | Higher |
| Who helps you | The distributor: paperwork, transactions, basic scheme-level guidance | Nobody, unless you separately pay a registered adviser |
The two NAVs drift apart mechanically. If both had started at ₹10 and the cost gap were a constant one percentage point, the direct plan's NAV would be about 12.5% higher after 13 years (1.11 ÷ 1.10, raised to the power 13 — a hypothetical, not any scheme's record).
What is a mutual fund agent's commission, and who pays it?
You pay it, indirectly. The fund house pays the distributor a trail commission — a percentage of the value of your holdings, every year, for as long as you stay invested — and recovers it through the regular plan's expense ratio, which is deducted from the NAV daily. You never see an invoice.
SEBI banned upfront commissions in October 2018 and moved the industry to an all-trail model, to reduce the incentive to churn portfolios. Trail rates differ by fund house and by scheme category, so a distributor can earn more on some schemes than on others.
You can see the rupee figure. Since 2016, SEBI has required the half-yearly consolidated account statement (CAS) to show the actual commission paid to your distributor against your investments, in absolute terms, along with each scheme's average expense ratio for both plans.
How do mutual fund advisers get paid in India?
There are three routes, and the registration tells you which one you are on.
| Route | Registration | Paid by | Plan used |
|---|---|---|---|
| Mutual fund distributor or agent | ARN from AMFI | The fund house, as trail commission out of your scheme | Regular |
| SEBI-registered investment adviser (RIA) | INA number from SEBI | You, as a fee agreed in writing | Direct |
| Do it yourself | None | Nobody | Direct |
SEBI keeps the first two apart. A distributor may give basic advice that is incidental to the schemes it distributes, but is not an investment adviser. An individual registered as an adviser cannot also distribute. A firm that does both must segregate clients at group level: a client either pays advisory fees or generates commission, never both. If an adviser helps you execute, it must be through direct plans, with no commission or referral fee to the adviser, its group or family.
Astra Wealthcraft Advisory LLP sits outside all three routes: it is a tax and compliance practice, takes no commissions and does not provide investment advice. Fee caps and how to verify an adviser are covered in what a financial planner costs.
What does a 1% expense difference cost over 20 years?
A one-point gap compounds into roughly 12% of the final value of a 20-year SIP, and about 17% of a 20-year lump sum. The tables assume 11% a year after costs in the direct plan and 10% in the regular plan.
| ₹10,000 monthly SIP | Direct (11%) | Regular (10%) | Difference |
|---|---|---|---|
| 10 years | ₹21.90 lakh | ₹20.66 lakh | ₹1.24 lakh (5.7%) |
| 20 years | ₹87.36 lakh | ₹76.57 lakh | ₹10.79 lakh (12.3%) |
| 30 years | ₹2.83 crore | ₹2.28 crore | ₹55.09 lakh (19.5%) |
| ₹10 lakh lump sum | Direct (11%) | Regular (10%) | Difference |
|---|---|---|---|
| 10 years | ₹28.39 lakh | ₹25.94 lakh | ₹2.46 lakh (8.7%) |
| 20 years | ₹80.62 lakh | ₹67.27 lakh | ₹13.35 lakh (16.6%) |
| 30 years | ₹2.29 crore | ₹1.74 crore | ₹54.43 lakh (23.8%) |
Both returns and the one-point gap are assumptions for illustration, not forecasts; no market data is used. Percentages are of the direct-plan value. SIP instalments at the start of each month, monthly rate = annual rate ÷ 12, as in our SIP calculator. Lump sum: ₹10 lakh × 1.11n against ₹10 lakh × 1.10n.
The real gap is not always one point. For the 20-year SIP, a gap of 0.5 points costs ₹5.60 lakh (6.4%) and a gap of 1.5 points costs ₹15.60 lakh (17.9%). Each fund house publishes the expense ratio of both plans of every scheme daily, and AMFI collects them on one page.
Where does the money go? In the 20-year SIP, the trail paid at 1% a year adds up to roughly ₹5.30 lakh — about ₹680 in the first year, rising to about ₹72,600 in the twentieth as the holding grows. The shortfall of ₹10.79 lakh is about twice that, because every rupee paid out also stops compounding.
What changed in April 2026. SEBI's new Mutual Funds Regulations, in force from 1 April 2026, split the old total expense ratio into a base expense ratio — fund management, distribution and registrar costs — with statutory levies such as GST, STT and stamp duty shown separately. The ceiling on the base ratio for an equity-oriented scheme runs from 2.10% on the first ₹500 crore of assets down to 0.95% on the largest schemes; for index funds and ETFs it is 0.90%. These are ceilings, not typical charges. [VERIFY: slab figures are from fund-house and trade-press summaries; confirm against the regulation text.]
How do I check whether I hold a regular or a direct plan?
- Read the scheme name on your statement. It ends in "Direct Plan" or "Regular Plan", followed by the option (growth or IDCW).
- Look at the distributor field. A regular-plan folio shows an ARN code; a direct one shows "Direct".
- Open the half-yearly CAS sent by the depositories or registrars and find the commission figure.
A platform that feels "free" is not automatic proof of a direct plan. A bank, broker or app registered as a distributor sells regular plans and earns trail on them.
What happens if I switch from regular to direct?
A switch is a redemption from the regular plan and a fresh purchase in the direct plan, even though the scheme is the same. That has four consequences.
- Capital gains tax. For equity-oriented funds: 20% on gains from units held up to 12 months, and 12.5% on long-term gains above ₹1.25 lakh in a financial year, plus cess.
- Exit load, if the units are still inside the load period. Reports from May 2025 say SEBI asked AMFI to have fund houses stop charging exit load on regular-to-direct switches [VERIFY: confirm in the scheme's latest addendum].
- Lock-ins. ELSS units cannot be switched until their three-year lock-in ends.
- Running SIPs do not move. The old SIP has to be cancelled and a new one registered in the direct plan.
The arithmetic, on hypothetical numbers: a holding worth ₹20 lakh with ₹8 lakh of long-term gains. Tax = (₹8,00,000 − ₹1,25,000) × 12.5% × 1.04 = ₹87,750, leaving ₹19,12,250 to reinvest. A one-point lower cost saves about ₹19,100 in the first year, so the tax is recovered in roughly four and a half years; on a compounded basis the direct holding passes the untouched regular holding in year five. Smaller gains shorten this, and a shorter horizon may never recover it. Some investors simply direct new money to the direct plan and leave old units alone, or spread redemptions over several years within the ₹1.25 lakh exemption — the mechanics are in our guide to tax harvesting. This is arithmetic, not a suggestion to switch.
Is paying for a regular plan ever reasonable?
Yes, if you use what you pay for. A good distributor handles KYC, nominations, bank changes and transmission after a death, and keeps some investors from selling in a panic. The cost is not the problem; not knowing it is. Two sets of questions make it visible.
- To a distributor: How many rupees did you earn on my portfolio last year, as my CAS shows? What do I get for that? Do some schemes pay you more than others? Will you put your service in writing?
- To yourself, before going direct: Will I review the portfolio, rebalance, and keep nominations and KYC current without reminders? Have I stayed invested through a fall before? If I want advice as well, am I ready to pay a fee for it?
How many investors use direct plans?
Direct plans held 45.1% of the industry's assets in March 2026, against 43.4% in March 2021 — but much of that is institutional money. Among retail investors the direct share was 36.7% (21.4% five years earlier), and among high-net-worth individuals 35.1% (28.8%), according to AMFI data reported by Business Standard on 6 September 2026 [VERIFY: secondary report; data as at 31 March 2026].
Related reading
- What does a financial planner cost? Fees vs commission
- Step-up SIP explained
- Tax-loss and tax-gain harvesting in India
- SIP calculator · Lumpsum calculator · Capital gains calculator
FAQ
Which is better, a regular or a direct mutual fund plan?
Why is the NAV of a direct plan higher than the regular plan?
How much commission does a mutual fund agent get?
Are mutual funds bought through a bank regular plans?
Is switching from regular to direct taxable?
Does Astra Wealthcraft sell mutual funds or earn commission?
Sources: SEBI circular CIR/IMD/DF/21/2012 (13 Sep 2012) — direct plans; Business Standard/PTI — SEBI's all-trail commission framework (22 Oct 2018); SEBI — commission disclosure in the CAS (20 Sep 2016); SEBI — FAQs on investment advisers (Aug 2025), Q33–34; SEBI (Mutual Funds) Regulations, 2026 as summarised by Kotak Mutual Fund and Cafemutual; AMFI — expense ratios of all schemes; Cafemutual — exit load on switches (15 May 2025); Business Standard — direct-plan share (6 Sep 2026). Cost arithmetic computed by us with the method of our SIP calculator. All checked 19 Sep 2026.
Education only. This article does not recommend any fund, plan, platform or distributor and is not investment advice. Mutual fund investments are subject to market risks. For tax and compliance work, or to point out an error, get in touch.
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