Direct vs Regular Mutual Funds: An Honest Answer from a Distributor

I'm a mutual fund distributor. I earn my living from regular plans. So you'd expect me to tell you regular plans are better.

I won't, because it isn't that simple, and you'd find the numbers anyway.

Same fund, two price tags

Every mutual fund scheme comes in two versions:

• Regular plan: bought through a distributor. The fund house pays the distributor a trail commission every year, and that is included in the plan's expense ratio.
• Direct plan: bought straight from the fund house or a direct platform. No commission, so a lower expense ratio.

Both own exactly the same shares and bonds, managed by the same fund manager. The only difference is the yearly cost, and therefore the NAV, which grows slightly slower in the regular plan.

What the gap costs over 20 years

Say the fund earns 12.5% a year before costs, and the regular plan costs 1% a year more than the direct plan (typical gaps are around 0.5% to 1.5% for equity funds).

₹10,000 a month for 20 years:

That's real money. Anyone who tells you the difference "doesn't matter" isn't being straight with you.

So why would anyone choose regular?

Because the biggest threat to a SIP isn't a 1% cost. It's stopping.

Investors who stop SIPs in a market fall, chase last year's top fund, or sit on cash for years "waiting for the right time" often give up much more than 1% a year. A distributor earns the commission by preventing those mistakes, and by doing the boring work: KYC, nominations, folio consolidation, tax harvesting, rebalancing, and paperwork when a family member passes away.

If that help keeps you invested through a 2020-style crash, the regular plan can be the cheaper option in practice.

Go direct if...

• you'll research funds yourself and review them once a year without fail
• a 25% fall in your portfolio wouldn't make you stop your SIP
• you're comfortable handling KYC changes, nominations and redemptions on your own

Stay regular (with a good distributor) if...

• you're starting out and don't want to manage it yourself
• you've stopped or redeemed in a panic before
• you want one person to call for everything your family holds

What a regular plan should get you

If you pay for help, expect actual help: a goal-based plan, a written reason for each fund, a yearly review, quick answers on WhatsApp, and someone who tells you not to switch funds every few months. If you aren't getting that, you're paying for nothing.

That's the standard I hold myself to at Shaiv Market. If you'd like a second look at a portfolio, direct or regular, the first review is free: book a call.

Questions people ask

Is direct mutual fund better than regular?

Direct plans have lower costs and grow more for the same fund. They suit investors who are confident managing their own portfolio. Regular plans cost more but include a distributor's ongoing help, which can be worth it for investors who need guidance to stay invested.

Can I switch from regular to direct plan?

Yes, but a switch is treated as a sale and a new purchase, so it can trigger capital gains tax and an exit load. Check both before switching, and consider switching only units that are past the exit-load period.

How much commission does a mutual fund distributor earn?

Distributors earn a trail commission from the fund house, usually a fraction of a percent to around one percent a year of the money invested, depending on the scheme. It is part of the regular plan's expense ratio, which every fund house publishes.