Understanding Direct and Regular Plans
Every mutual fund scheme is offered in two variants: Direct Plans and Regular Plans. Both plans invest in the exact same portfolio of stocks and are managed by the same fund manager. The key difference lies in how they are sold and the associated fees. Regular plans include distributor commissions, whereas direct plans are purchased directly from the AMC, bypassing middleman fees.
Over long periods, this difference in costs can significantly impact your wealth. To see how these fees compare with regular plans, check our guide on SIP vs Lumpsum investing performance.
The Long-Term Impact of Expense Ratios
The commission in regular plans is charged through a higher Expense Ratio. While a 1% difference in the annual expense ratio may seem minor, it adds up over time due to compounding.
For example, if you invest Rs. 10,000 monthly for 25 years at an expected return of 12% p.a., a direct plan could yield Rs. 1.7 Crore, while a regular plan might yield only Rs. 1.4 Crore. The 1% commission difference effectively costs you Rs. 30 Lakhs in lost returns.