Direct Plan vs Regular Plan – What Should You Choose? 

If you’ve ever compared mutual fund schemes, you might have noticed two options – Direct Plans and Regular Plans. While they appear identical, with same fund manager, same portfolio, and same objective, there’s a subtle difference. The Fund Management Fees or the TER.  

This subtle difference can significantly impact your mutual fund returns in the long term. In this article, we decode what separates the two, and also discuss which plan truly makes sense for you.

Marking the Difference 

Regular Plan 

Regular Plans are the version of the mutual fund scheme that is invested through a distributor, broker, or advisor. The person or the entity helping you invest in the regular plan, earns a commission for that which is absorbed into fund’s TER or the expense ratio. This is the reason why Regular Plan carry a higher expense ratio than Direct Plan of the same scheme.

Direct Plan 

Through direct plans, you invest directly with the Asset Management Company (AMC) without a middleman. As a result, there are no commissions paid to them which ultimately benefits you in terms of a lower expense ratio and thereby higher net returns. 

The Impact of the Difference 

While the gross returns of the direct plan and the regular plan of the same mutual fund scheme is the same, the net returns differ due to the difference in Expense Ratio or the TER. This difference is usually between 0.2% – 1.2%. While the difference may seem minimal, this small difference can impact your wealth in a big way in the long term. Let us understand this through an example. 

Source: EduFund Internal Research 

Just observe how the little difference of 0.8% a year compounds to a substantial gap between the schemes – a difference of 15% in the value of the portfolio. Not so little, huh? However, a caveat here is that this advantage of direct plans only materializes if the investor stays invested for a long term in good funds. 

Rise of Direct Plans in India 

Direct Plans have seen a rise in their popularity ever since the Covid-19 pandemic. Ever since investors have gained clarity about the impact that the differential cost of regular plans has on their investment portfolio in the long term, direct plans have been a go-to option for investors.  

As per an AMFI report, direct plan SIPs with a tenure exceeding five years, rose from 16.5 Lakh SIPs in FY24 to 26.8 Lakh SIPs in FY25, showing a growth of 63% YoY while similar regular plan SIPs grew only 11%. 

However, another AMFI report in March 2025 highlights that only 19% of the direct plan AUM was held for over five years, compared to 33% in regular plans. Another monthly report by AMFI states that as at end of May 2025, in B-30 towns, SIP closures in direct plans were 2.6X higher than in regular plans, despite a smaller direct plan investor base. 

This data highlights the enduring value that professional guidance, especially for retail investors as they are more likely to react impulsively while investing.  

Do Direct Plans Always Make Sense? 

The cost advantage of direct plans is real, but that doesn’t automatically mean that they are the best choice for every investor. It depends on an investor’s capability, experience, discipline, and access to professional guidance. Direct plans make sense for you if: 

• You have the ability and willingness to research and select mutual funds by evaluating funds, read reports, follow fund metrics, etc. 

• You use fee-only advisors (i.e. you pay for advice as a fee, not via embedded commissions in financial products) who can guide you with a neutral perspective. 

• You prefer, a DIY approach, and use tools to help you invest in quality funds and are confident about managing your own portfolio. 

When do Regular Plans still make sense

• You do not have the time, interest, or expertise to pick funds or monitor them, 

• You value psychological support, accountability, and regular nudges that an MFD/advisor gives, making it more likely for you to stick to your investment plans. 

• You want to benefit from the expertise of an advisor by not paying a fee from your pocket. 

Investor Behaviour: What Trends Show 

There are some interesting behaviour patterns to notice while comparing investors in direct plans and regular plans. 

Holding Period & SIP Persistence

Though direct plans are growing faster than ever, many direct investors still don’t hold funds for long periods. Only a small fraction of direct SIPs remain active beyond 5 years. This impacts the long-term compounding of the investor’s wealth which limits their portfolio growth. 

Asset Allocation Tilt

Direct Plan investors tend to lean heavily towards equity-oriented funds, avoiding debt or balanced allocations. An AMFI analysis of individual investor allocations in July 2025 reveals that only 4% of the investments coming from cities beyond Top-30 are allocated towards debt and hybrid schemes in Direct Plans while the number is 14% for those in Regular Plans. This shows that advisors help investors allocate across asset class aiding in diversification and better risk management. 

Scheme Hopping & Overconfidence

Without discipline and professional guidance, investors often end up chasing the last year’s top performers, switch schemes frequently, or exit during downturns. Emotions often overtake the best of the investor’s rationale which ultimately erode gains. 

All of these behaviours dilute the benefit of paying lower costs, because the real gains only come if you invest consistently and stay invested for the long-term. 

Recommendations & How to Make it Work 

It is understandable that an investor may prefer paying low cost because the costs of poor investments are only visible over a period and not immediately. So, here’s how you can approach your investing. 

1. Track a Benchmark and Compare Returns 
   As per your investment goals and your current portfolio, assign a benchmark that you want to track. Track your returns vs your benchmark. If you are underperforming persistently, re-evaluate your approach. 

2. Use Quality Advice 

If you can afford it, a fee-only advisor can help you with your portfolio construction and discipline. Alternatively, MFD or an advisor who works with regular plans could also make sense for you if you do not want to bear costs upfront. 

3. Consider Robo-Advisors 
   For low-cost guidance, robo platforms can be a good option. They offer algorithmic advice although customization is limited. 

4. Goal-based investing and consistency 
   Anchor your investing to goal. This fosters discipline and reduces impulse based actions and other noise. 

Final Word 

 In the debate of whether Direct Plan vs Regular Plan and which one is better, the direct route wins on cost, and over long horizons, that cost edge definitely has an impact. But that edge is only meaningful when investor stays invested for a long term, in quality funds, and avoid impulse investing actions. For many, the coaching, regular nudges, and accountability provided by advisors or distributors compensate for the extra cost by helping them stay on track. 

So the better option is not universally fixed. It depends on YOU. Are you comfortable being your own guide? Or do you benefit from professional guidance? In either case, being disciplined, clear about your goals is a winner mindset for any investor. 
 

Disclaimer: The data in this presentation are meant for general reading purpose only and are not meant to serve as a professional guide/investment advice for the readers. This presentation has been prepared on the basis of publicly available information, internally developed data and other sources believed to be reliable. Whilst no action has been suggested or offered based upon the information provided herein, due care has been taken to endeavor that the facts are accurate and reasonable as on date. The information placed on the presentation is for informational purposes only and does not constitute as an offer to sell or buy a security. The Company reserves the right to make modifications and alterations to the content available on the presentation. Readers are advised to seek independent professional advice and arrive at an informed investment decision before making any investment. The EduFund platform & the website is owned, operated and maintained by Helena Edtech Private Limited, a company incorporated under the laws of India. An affiliate of the Company, i.e. Edubillions Tech Private Limited is registered with AMFI as mutual fund distributor bearing the registration number ARN258733. Investment in securities market are subject to market risks, read all the related documents carefully before investing. The valuation of securities may increase or decrease depending on the factors affecting the securities market. 

About the author

Niraj Satnalika

Head Of Research,EduFund

Dr. Niraj is a finance professional with 12+ years of experience and is part of the founding team at EduFund. He’s worked with Goldman Sachs, CRISIL and Sakal Media in roles spanning investment management, research and leadership. With a PhD in Finance from IIT Bombay, he brings deep expertise in valuation, governance and education planning. When he’s not teaching or writing, you’ll find him cooking or going on long drives.