Direct vs Regular Mutual Funds: The 1% That Costs You Lakhs
For most DIY investors, Direct plans are the better choice. They cost less because they carry no distributor commission, and that 0.5-1% difference can compound into lakhs over 20 years. Use a platform like Groww, Kuvera, or Coin. Regular plans (sold by banks and advisors) still make sense in a few specific situations, covered at the end.
You open an app, search for a mutual fund, and see two options: “Direct” and “Regular.” They look identical. Same fund, same manager, same portfolio. The only difference is a number: the expense ratio.
That number will cost you lakhs if you pick wrong.
What is the difference?
Every mutual fund scheme has two plans:
| Direct Plan | Regular Plan | |
|---|---|---|
| Sold through | You buy it yourself (app/AMC website) | A distributor/advisor sells it to you |
| Commission | None | AMC pays your distributor 0.5-1.5% annually |
| Expense ratio | Lower | Higher (includes distributor commission) |
| NAV | Higher (more of your money is invested) | Lower |
| Returns | Higher | Lower (by the commission difference) |
Same fund. Same stocks. Same fund manager. The only difference: in regular plans, the AMC takes extra money from your corpus every year and pays it to whoever sold you the fund.
Corpus is the total amount of money you’ve accumulated in an investment. If your SIPs over 5 years have grown to ₹8 lakh, your corpus is ₹8 lakh.
How much does 1% actually cost?
People hear “1% difference” and think it’s nothing. Let’s do the math.
₹10,000/month SIP for 20 years:
| Direct (expense 0.5%) | Regular (expense 1.5%) | Difference | |
|---|---|---|---|
| Gross return (12%) | 12% | 12% | Same fund |
| Net return after expenses | 11.5% | 10.5% | 1% |
| Corpus after 20 years | ₹96.8 lakh | ₹84.5 lakh | ₹12.3 lakh |
₹12 lakh gone. Not to the market, not to taxes. To a distributor whose only job, in many cases, was selling you the fund once. That’s the power of compounding working against you.
(These figures are illustrative. Actual expense ratios vary by fund, the gap is not always exactly 1%, and returns are never fixed. The point is the direction: a small annual difference compounds into a large amount over decades.)
At ₹25,000/month, that difference becomes ₹30+ lakh. At ₹50,000/month, over ₹60 lakh.
Who gets the commission?
Your bank relationship manager. The “financial advisor” at a distributor firm. The app that showed “Regular” as the default option.
They earn this commission every year for as long as you stay invested. Not a one-time fee. Every single year, a slice of your corpus goes to them.
Some distributors do provide genuine advice and handholding. But most just sold you a fund once and forgot about you. You’re still paying them annually.
Where to buy Direct plans: AMC vs App
Now that you know Direct is better, where do you actually get it? A quick clarification on who’s who:
- AMC (Asset Management Company): The company that actually manages the mutual fund. HDFC AMC, ICICI Prudential AMC, UTI AMC, etc. They hire the fund managers, pick the stocks, and run the fund.
- App/Platform: Where you buy the fund. This can be the AMC’s own website (like utimf.com), or a third-party platform.
Here’s where it gets confusing: not all apps are the same.
| Platform type | Examples | What they sell |
|---|---|---|
| AMC website | utimf.com, hdfcfund.com, icicipruamc.com | Only that AMC’s own funds (Direct) |
| Direct plan platforms | Groww, Kuvera, Zerodha Coin, Paytm Money | Multiple AMCs, Direct plans |
| Distributor platforms | FundsIndia, banks (HDFC, ICICI, SBI) | Multiple AMCs, Regular plans (they earn commission) |
So the thing to watch out for is that some AMCs also act as a distributor for other AMCs. For example, HDFC’s website will sell you HDFC funds as Direct. But if it also lets you buy, say, an SBI fund through their platform, that SBI fund will likely be a Regular plan (because HDFC is acting as a distributor for SBI and earning commission). When buying from an AMC website, stick to that AMC’s own funds for Direct plans.
Groww and Kuvera are third-party apps, but they sell Direct plans. They make money from other sources (gold, stocks, ads), not from mutual fund commissions. FundsIndia looks similar but is a distributor: it earns commission from AMCs, so it sells Regular plans by default.
The app doesn’t create the fund. The AMC does. The app is just a shopfront. The question is whether that shopfront is charging you extra (Regular) or not (Direct).
Our recommendation: use a Direct plan platform like Kuvera, Groww, or Zerodha Coin. If you buy directly from AMC websites, you’ll need separate accounts with each AMC (one for UTI, one for HDFC, one for ICICI…). With a platform like Kuvera or Groww, one account gives you Direct plans from every AMC in one place. Same Direct plans, same low expense ratios, zero commission, but everything in one dashboard. Once you’re set up, picking the right fund is the next step: start with index funds if you want simplicity.
Are these apps safe?
A common worry: “If I buy through Groww or Kuvera, what happens to my money if the app shuts down?”
Your money is safe. Here’s why:
- Your units are held by the AMC, not the app. When you buy a fund through Groww, the units are registered with the AMC (like UTI or HDFC) in your name, linked to your PAN. Groww is just the transaction platform.
- SEBI-registered. Legitimate platforms are registered with SEBI as RIAs (Registered Investment Advisors) or through BSE/NSE’s mutual fund platform (BSE StAR MF or NSE NMF). They can’t just disappear with your money.
- You can always check independently. Log into MF Central or CAMS/KFintech with your PAN. You’ll see all your mutual fund holdings regardless of which app you used to buy them.
- If the app shuts down, your investments continue. You can access them through MF Central or directly through the AMC. This has already happened (FundsIndia scaled down operations) and investors didn’t lose money.
How to verify an app is legitimate: Before investing through any platform, check if it’s registered with SEBI or operates through BSE StAR MF/NSE NMF. Search for the company name on SEBI’s intermediary list. If you can’t find it, don’t use it. Stick to well-known platforms: Groww, Kuvera, Zerodha Coin, Paytm Money, or AMC websites directly.
How to check if your funds are Direct or Regular
Look at the fund name in your portfolio:
- Direct: “Nifty 50 Index Fund - Direct Growth” or has “Direct” in the name
- Regular: “Nifty 50 Index Fund - Growth” (no “Direct” label) or says “Regular”
If you bought through a bank, a distributor, or an app that doesn’t clearly label “Direct”, chances are you’re in Regular.
How to switch from Regular to Direct
You have three options:
Option 1: Stop and restart (simpler)
- Stop your SIP in the Regular plan
- Start a new SIP in the same fund’s Direct plan (on Groww/Kuvera/Coin)
- Leave the old Regular investment as-is (or redeem later when convenient)
This is the easiest approach. You don’t need to time anything.
Option 2: Switch (redeem and reinvest)
- Redeem your Regular plan units
- Invest the proceeds in the Direct plan of the same fund
Tax implication: Redemption triggers capital gains tax. Rates below are as of FY 2026-27; tax rules change periodically, so confirm the current figures before you switch.
- Equity funds held < 1 year: 20% STCG
- Equity funds held > 1 year: 12.5% LTCG (above ₹1.25 lakh exemption)
- Debt funds: taxed at your income slab regardless of holding period
For large amounts, the tax hit of switching might take 1-2 years to recover through the lower expense ratio. For small amounts, the math usually favours switching immediately.
The tax-free switch most people miss: Equity LTCG is only taxed above ₹1.25 lakh of gains in a financial year. So if your total long-term gains for the year are under that limit, you can switch your Regular funds to Direct right now without paying a single rupee in tax. Have larger gains? Switch in chunks across two or three financial years, keeping each year’s realised gains under ₹1.25 lakh, and you can move the whole portfolio tax-free. Check your gains for the year before you start.
Option 3: Use the “switch” button on your app or MF Central
Many apps and AMCs offer a one-click “switch” from Regular to Direct within the same scheme. It feels seamless, but be clear about what’s happening: a switch is still a redemption of your Regular units and a fresh purchase of Direct units. It triggers the same capital gains tax as Option 2. The button just saves you a step, it does not save you tax.
”But my advisor helps me pick funds”
Fair question. If your advisor:
- Reviews your portfolio quarterly
- Rebalances when needed
- Helps you avoid panic selling during crashes
- Does tax-loss harvesting
…then the commission might be worth it. Good advice has value.
But if your “advisor” just sold you 4-5 funds two years ago and you haven’t heard from them since, you’re paying a recurring fee for a one-time service. Many people are in this bucket.
When Regular plans actually make sense
- You genuinely need handholding: You’re new, anxious, and will panic-sell without someone to talk to. The commission is insurance against your own behaviour. (If this is you, start with our beginner investing guide to build confidence.)
- You want advice but your portfolio is small: The cleaner way to pay for advice is a SEBI-registered fee-only advisor, who charges a flat ₹10,000-50,000 per year and lets you buy Direct plans. But on a small portfolio (say under ₹5 lakh), that flat fee can work out costlier than the commission baked into a Regular plan. In that narrow case, a Regular plan is the cheaper way to get hand-holding, at least until your portfolio grows.
- Corporate/employer plans: Some employer benefits use Regular plans. You might not have a choice.
For everyone else: go Direct.
- Open your investment app. Check if your funds say “Direct” or “Regular”
- If Regular: start a new Direct SIP today (same fund, just the Direct version)
- For existing Regular investments: decide based on the size. Small amount? Switch now. Large amount with short holding period? Wait for 1-year mark, then switch
- Don’t overthink this. The important thing is to stop future SIPs from going into Regular plans
The 1% looks small today. In 20 years, it’s a car. Or a year of your kid’s college. Your choice where that money goes.