Direct vs Regular Mutual Funds: How to Save 1% Commission
The difference between Direct and Regular mutual funds might seem like a small 1% fee, but over 20-30 years, this commission can cost you ₹25-50 Lakhs! That's money taken from your retirement to pay a broker.
Understanding the Expense Ratio impact and knowing which platforms offer zero-commission investing is crucial. This guide breaks down the math, shows you how to switch, and explains why Index Funds are winning.
Direct vs Regular: The Core Difference
Both plans invest in the same portfolio with the same fund manager. The only difference is who gets paid.
| Feature | Regular Plan | Direct Plan |
|---|---|---|
| Sold By | Brokers / Distributors | AMC / Zero-Commission Platforms |
| Commission | Yes (0.5% - 1.5%) | Zero |
| Expense Ratio | Higher (e.g. 2.0%) | Lower (e.g. 0.8%) |
| Returns | Lower | 1-1.5% Higher Annually |
The 1% Difference: How It Works
The Expense Ratio is the annual fee deducted from your investment.
- Regular Plan Expense Ratio:2.34%
- Direct Plan Expense Ratio:0.39%
- Difference:1.95% per year!
This means in the Regular plan, you lose almost 2% of your wealthevery single year to commissions, regardless of profit or loss.
The Cost of Commissions
Let's simulate a ₹10,000 Monthly SIP for 20 Years assuming 12% market returns.
| Scenario | Expense Ratio | Net Return | Final Corpus |
|---|---|---|---|
| Regular Plan | 2.0% | 10% | ₹75.94 Lakhs |
| Direct Plan | 1.0% | 11% | ₹88.53 Lakhs |
| Loss to Commission | - | - | ₹12.59 Lakhs Lost! |
How to Switch to Direct Plans
Switching isn't automatic. You must redeem (sell) and reinvest (buy).
- Audit: Check your portfolio. Identify funds with "Regular" in the name.
- Tax Check: Calculate Exit Load and Capital Gains Tax (LTCG/STCG).
- Platform: Open an account on a Direct platform (Zerodha/Groww).
- Redeem: Sell your Regular units. Money hits bank in T+2 days.
- Reinvest: Buy the Direct Plan of the same fund.
- SIPs: Stop old SIPs. Start new SIPs in Direct plans.
Best Direct MF Platforms
Demat mode. Best for serious investors. Zero commission.
Simple UI. Beginner friendly. Zero commission.
Good analytics. Zero commission.
Direct with fund house. Clunky but no middleman app.
Active vs Passive: Why Index Funds Win
Once you go Direct, the next question is: Active Fund (Manager picks stocks) or Index Fund (Tracks Nifty 50)?
| Category | Recommendation | Reason |
|---|---|---|
| Large Cap | Index Funds (Nifty 50) | Active struggle to beat; Index is cheap. |
| Mid/Small Cap | Active Funds | Managers can find hidden gems; alpha. |
| International | Index Funds (S&P 500) | Low cost exposure to US tech. |
Frequently Asked Questions (FAQs)
Final Verdict
Switching to Direct Funds is the single highest-ROI move you can make today. Don't let 1% eat your retirement.
Fincado Research Team
Fact CheckedOur analysis is built on deep-dive research into RBI Benchmarks and lender-specific disclosures. We verify every interest rate and fee structure against real-world borrower approvals to ensure the highest level of accuracy for Indian home buyers.
Disclaimer: Mutual Fund investments are subject to market risks. Read all scheme related documents carefully. Past performance is not an indicator of future returns. This guide is for educational purposes only.
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