Two investors buy the same mutual fund on the same day, same amount. After 20 years, one has Rs.1 crore, other has Rs.85 lakh. Why? One chose Direct Plan, the other Regular Plan.
What Are Direct and Regular Plans?
- Regular Plan: Bought through a distributor. Includes commission in expense ratio.
- Direct Plan: Bought directly from AMC. No distributor commission.
Both invest in the exact same portfolio. Only fee structure differs.
The Hidden Commission
In Regular Plans, AMCs pay 0.5-1.5% of your investment annually to distributors. This is called "trail" and continues forever.
Real Return Comparison
Rs.10,000 monthly SIP for 20 years at 12% gross:
- Direct (1.0% ER): Net 11% - Rs.87 Lakh
- Regular (2.0% ER): Net 10% - Rs.76 Lakh
- Extra with Direct: Rs.11 Lakh
Why People Still Buy Regular Plans?
- Unaware of the difference
- Bank RM sold during loan visits
- AMC website seems complex
How to Identify Direct Plans?
Look for "Direct" in scheme name. Example: "SBI Small Cap Fund - Direct Plan - Growth".
How to Switch from Regular to Direct?
Cannot convert - must redeem Regular and buy Direct. Tax and exit load implications apply.
Where to Buy Direct Plans?
- AMC websites
- MF Utility (MFU)
- Myfolios, Groww, Coin (Zerodha), Kuvera
Use our SIP Calculator to see your savings by switching.
