8 Jul 2025
When investing in mutual funds, investors can choose between two types of mutual fund plans: direct and regular. While both invest in the same portfolio and are managed by the same fund manager, they differ in cost structure and mode of access. Your choice depends on how much support you need and how confident you are in managing your investments.
Key Takeaways
- Direct mutual fund plans have a relatively lower expense ratio as they exclude distributor commissions.
- Regular plans are purchased through mutual fund distributor who assist with process like submitting application form.
- NAV of direct plans is usually higher due to lower costs, not better performance.
- Switching between plans may attract capital gains tax and exit load.
- Choose based on your confidence, investing knowledge, and need for support.
- Both direct and regular options support investing through SIP, making them flexible for beginners and seasoned investors alike.
What Are Direct and Regular Plans?
When investing in mutual funds, you will come across two options Direct Plans and Regular Plans. Both are managed by the same fund manager and invest in the same underlying portfolio. The key difference lies in how you invest and the associated costs.
- Direct Plan: You invest directly through the Asset Management Company (AMC) via its website, app, or branch without involving any intermediary. As a result, no distributor commission is paid, and the expense ratio is relatively lower.
- Regular Plan: You invest through a third party such as a mutual fund distributor & bank etc. The AMC pays them a commission, which is included in the scheme’s expense ratio.
Why Both Options Are Available
SEBI introduced this dual plan structure to enhance transparency and promote investor choice. It caters to different investor needs:
- Investors who are comfortable making decisions independently may prefer the cost effective Direct Plan.
- Investors who seek personalized assistance may find Regular Plans more suitable.
Direct vs Regular Mutual Fund Plan: Key Differences Explained
| Feature |
Direct Plan |
Regular Plan |
|
Returns |
Potentially higher, as there are no distributor commissions |
Slightly lower due to higher expenses |
|
Net Asset Value |
Generally higher because of relative lower costs |
Slightly lower, as expense ratio is built into the Net Asset Value (NAV) |
|
Expense Ratio |
Lower, as there are no commissions to intermediaries. |
Higher, due to inclusion of intermediary commissions. |
|
Intermediary |
None, investment is made directly through the Asset Management Company (AMC) |
Includes agents, brokers, or banks who assist in transactions |
|
Convenience |
Suitable for self-directed and digitally comfortable investors. |
Suitable for those who prefer guidance and assisted services. |
Who Should Pick Which?
For Do It Yourself (DIY) Investors:
Investors who are comfortable researching mutual fund investments, monitoring performance, and making independent investment decisions may consider Direct Plans. These plans have a relative lower expense ratio as they exclude distributor commissions and are suitable for those who prefer managing their investments through digital platforms.
Guidance Seeking Investors
If you are new to mutual fund investing or prefer support in decision making, Regular Plans may be appropriate. Though the expense ratio is higher, these plans provide access to financial distributors who can assist with scheme selection and long term investment strategies.
When Mixing Both Makes Sense
Some investors may choose to invest in a combination of Direct and Regular Mutual Fund Plans based on their comfort level and understanding of different mutual fund categories. For example, they may opt for Direct Plans where they feel confident making independent decisions. In contrast, they may consider Regular Plans in segments where they prefer execution support or access to product information through a distributor. Investors should also factor in taxation, exit loads, and long term financial goals when switching between plan types.
How to Identify a Regular or Direct Mutual Fund Plan
1. Check the Fund Name:
Your investment statement or app will specify the plan type. If it's a direct plan, it will include the term Direct Plan in the name.
2. Review the Total Expense Ratio (TER):
Direct plans have a relative lower Total Expense Ratio (TER) compared to regular plans because they do not include distributor commissions.
3. Use Online Tools:
You can verify your plan type through the fund house's official website or your investment platform.
How to Switch from Regular to Direct Plan (Step by Step)
- Log in to your mutual fund platform or the AMC's website.
- Find the existing regular plan you want to switch from.
- Search for the same scheme under the “Direct Plan” category.
- Choose the switch option, or redeem your units and reinvest them in the direct plan.
- Before confirming, check for any applicable exit load or capital gains tax.
- Review tax implications and exit loads before proceeding.
Tax & Exit Load Considerations
When you switch from a regular mutual fund plan to a direct plan or vice versa, it is considered a redemption from the original investment and a fresh purchase into the new one. This transaction is subject to capital gains tax based on the type of fund and how long you have held it.
Additionally, exit loads, which are fees charged by the fund house if you redeem before a specified time, may apply. It is wise to review the fund’s exit load structure before initiating the switch to avoid unexpected deductions.
In short, consider both tax liability and potential exit charges before moving from a regular to a direct mutual fund plan.
Conclusion
Direct and Regular mutual fund plans cater to different types of investors. If you're confident in selecting funds and managing your portfolio on your own, Direct Plans can help reduce costs and potentially enhance returns. On the other hand, if you prefer execution support and access to product related information, Regular Plans through a distributor may be suitable. It's important to choose a plan based on your financial knowledge, comfort level, risk tolerance, and long term investment objectives.
FAQs
1) Which is better: direct or regular mutual fund plan?
Direct plans are cost effective but require self research. Regular plans offer convenience but come at a higher cost.
2) How do SEBI regulations affect direct and regular plans?
SEBI mandates clear labelling, separate NAVs, and disclosure of TERs to ensure transparency and investor choice.
3) Is the NAV always higher in the direct plan?
Yes, due to relative lower expenses. But this does not imply better performance it reflects lower cost, not different returns.
4) Does switching trigger capital gains tax?
Yes. A switch from regular to direct is treated as a sale and may attract capital gains tax.
5) How will I know if I have invested in a direct or regular plan?
Check your mutual fund account statement the plan type is clearly mentioned.
6) Do direct plans always suit investors who handle everything online?
Usually yes, but investors should be comfortable with fund selection and monitoring.
7) Can I start in a regular plan and later switch to a direct plan?
Yes, but switching may incur tax and exit load. Plan your move strategically.
8) Can I mix direct and regular plans within one portfolio?
Yes, you can mix direct and regular mutual fund plans in one portfolio.
Disclaimers
Investors may consult their Financial Advisors and/or Tax advisors before making any investment decision.
These materials are not intended for distribution to or use by any person in any jurisdiction where such distribution would be contrary to local law or regulation. The distribution of this document in certain jurisdictions may be restricted or totally prohibited and accordingly, persons who come into possession of this document are required to inform themselves about, and to observe, any such restrictions.
MUTUAL FUND INVESTMENTS ARE SUBJECT TO MARKET RISKS, READ ALL SCHEME RELATED DOCUMENTS CAREFULLY.
