Direct plan vs regular plan

Open the details for almost any scheme and you will find it listed twice: once as a direct plan and once as a regular plan. Same scheme, same portfolio, two names and two slightly different costs. Because we are a distributor, and the difference between the two is how a distributor like us is paid, we would rather explain it squarely than let you find it out later.

Every scheme comes in two plans

Since 2013, every mutual fund scheme in India has been required to offer a direct plan alongside its regular plan. They are not two different funds. They are two ways of buying into the identical pool of investments — the same holdings, the same fund manager, the same mandate, the same movements in percentage terms. What differs is one line in the cost.

Same portfolio, same manager

It is worth being emphatic, because the names invite the suspicion that one is somehow better run. It is not. A direct plan and a regular plan of the same scheme own exactly the same shares and bonds in exactly the same proportions, managed by the same person to the same rules. Nothing about the investment strategy changes between them. The only thing that changes is what it costs you to hold, and therefore the NAV each plan reports.

Where the difference goes

The cost of running a scheme is its expense ratio, an annual percentage deducted from the fund. The regular plan’s expense ratio includes a distributor commission — a trail paid, out of that expense ratio, to the distributor who brought and services the investment. The direct plan carries no such commission, so its expense ratio is lower.

That is the whole mechanism. A regular plan costs a little more each year, and that extra sliver — commonly somewhere around half a percent to one percent a year, depending on the scheme and category — is the distributor’s pay. Because the direct plan skips it, its NAV grows very slightly faster over time for the identical portfolio. You are not charged a separate bill either way; the cost lives inside the expense ratio.

The gap is real, and it compounds

We will not wave this away, because a fraction of a percent a year is not nothing. Deducted every year and compounded over a long horizon, the difference between a direct and a regular plan of the same scheme adds up to a real sum. Anyone who tells you the gap is negligible is not being straight with you. It is the honest argument for holding the direct plan, and it deserves to be stated at full strength rather than buried.

So if you are confident choosing schemes yourself, keeping an eye on them, rebalancing when your mix drifts and staying the course when markets are unpleasant, the direct plan lets you keep that sliver. That is a genuine and defensible choice, and we would not argue you out of it.

What the regular plan pays for

What you are paying for in a regular plan is not access to the scheme — the scheme is the same either way — but the service around it: help completing the paperwork, keeping folios and nominations in order, and, in the years afterwards, a person to talk to when a fall makes you want to sell. Behaviour, not selection, is where most investors actually lose return, and a steady hand in a bad quarter can be worth more than the sliver it costs.

Be clear about the limit of what that service is. As an AMFI-registered distributor we can help you invest and keep the admin straight; we are not investment advisers and do not hand you a personalised financial plan. If you want to see exactly what we do and do not do for the commission, how we work sets it out plainly.

How to think about the choice

There is no universally right answer here, and it would be self-serving of us to pretend otherwise. The direct plan is cheaper and suits the confident do-it-yourself investor. The regular plan costs a defined amount more each year and, in exchange, comes with the help of a distributor — worth it for some people and not for others.

The one thing we would ask is that you decide it with the real numbers in front of you: find the two expense ratios on the scheme document, see the gap, and weigh it honestly against how much you want to do yourself. That is the same test we would apply, and what a mutual fund is sets out the fuller picture of where a distributor fits.