Quick answer: More investors in India are choosing direct plans of mutual funds because they cost less. A direct plan holds exactly the same portfolio as the regular plan of the same scheme, but it pays no distributor commission, so it has a lower expense ratio and, over time, a higher NAV and higher returns. The trade-off is that you choose, monitor and rebalance your funds yourself, without a distributor’s help.
What a direct mutual fund plan is
Since 1 January 2013, every mutual fund scheme in India has had to offer a separate “Direct Plan” for investors who do not invest through a distributor. The Securities and Exchange Board of India (SEBI) required this in a circular dated 13 September 2012. SEBI said the direct plan must have a lower expense ratio that excludes distribution expenses and commission, and that no commission may be paid from it.
The direct plan and the regular plan of a scheme share the same fund manager, the same investments and the same risk. The differences are:
| Feature | Direct plan | Regular plan |
|---|---|---|
| Distributor commission | None | Paid to the distributor out of the scheme’s expenses |
| Expense ratio | Lower | Higher |
| NAV | Separate, usually higher over time | Separate, usually lower over time |
| Portfolio and fund manager | Same | Same |
| Help choosing funds | You decide yourself, or pay a SEBI-registered investment adviser separately | The distributor guides you |
You can spot a direct plan by the word “Direct” in the scheme name, for example “XYZ Flexi Cap Fund – Direct Plan – Growth”.
Why cost efficiency matters
The expense ratio is deducted from the scheme’s assets every day, so you never see it as a separate bill. It simply lowers your return. A small yearly difference adds up because of compounding.
As an illustration only, suppose two plans of the same fund earn identical returns before costs, and after costs one grows at 11% a year and the other at 10.25% a year because of a 0.75 percentage point higher expense ratio. ₹1,00,000 invested for 15 years would grow to about ₹4,78,000 in the first plan and about ₹4,32,000 in the second, a gap of roughly ₹46,000. Real expense ratio gaps vary by scheme and change over time, and future returns are never guaranteed.
Mutual funds disclose the total expense ratio (TER) of both direct and regular plans on their websites, so you can compare the actual difference for any scheme before investing.
The 2026 expense ratio rules
From 1 April 2026, the SEBI (Mutual Funds) Regulations, 2026 replaced the 1996 regulations. The new rules split costs into a Base Expense Ratio (BER), which covers the fund house’s management and distribution-related costs, and statutory levies such as GST and stamp duty, which are charged on top at actual cost. The maximum BER for the smallest slab of an open-ended equity scheme is 2.10% a year, and the caps fall as the scheme grows. Fund houses publish changes to their schemes’ BER through notices on their websites.
Where you can invest in direct plans
An earlier version of this article said direct plans are bought “through the fund house itself”. That is one route, but not the only one:
- The fund house (AMC) itself: through its website or app.
- MF Central: a common platform set up by the registrars CAMS and KFintech, launched in 2021, where you can view holdings and transact across fund houses.
- Execution-only platforms (EOPs): since 1 September 2023, online platforms that only process direct-plan transactions must register under SEBI’s framework, either as an agent of fund houses (with AMFI) or as a SEBI-registered stockbroker.
- Stockbroker and investment adviser platforms: many brokers let their clients buy direct plans, and SEBI-registered investment advisers can place direct-plan investments for clients who pay them an advisory fee instead.
Direct plans come in every category: equity, debt, hybrid and index funds, so you can build a full portfolio from them. With the growth of technology and easy access to scheme information, many investors now compare options themselves before they invest in mutual funds.
The role of digital investment platforms
Investment apps have changed how people invest. On one platform you can research schemes, compare past performance and expense ratios, and complete a purchase or start a SIP within minutes. Some broker apps, such as HDFC SKY from HDFC Securities, which is also marketed as a margin trading app, offer mutual funds alongside shares, exchange-traded funds and futures and options, so you can see different investments in one place.
Before you invest through any platform, check two things. First, confirm that the scheme name shows “Direct” if you want the direct plan. Second, check any platform fees, because a platform charge can eat into the savings of a direct plan. Easy, continuous access to your portfolio is useful, but checking it constantly can also tempt you into frequent trading.
Growth of mutual fund investing in India
Mutual fund investing in India has grown quickly. According to monthly data from the Association of Mutual Funds in India (AMFI), as reported by DD News, the industry’s total assets under management stood at about ₹87.08 lakh crore at the end of August 2026. Direct plans are part of this growth, especially among investors who use apps and are comfortable choosing funds themselves.
Who should choose direct plans, and who may not
Direct plans suit you if you:
- understand your goals, time horizon and risk profile;
- can choose funds, keep track of them and rebalance once or twice a year; or
- pay a SEBI-registered investment adviser a fee for advice and want to avoid paying commission as well.
A regular plan through a distributor may still make sense if you want someone to guide you, handle paperwork and keep you from panic-selling in a market fall, and you accept that this service is paid through a higher expense ratio.
If you already hold regular plans, switching to the direct plan of the same scheme counts as selling and buying again. Capital gains tax and any exit load may apply, so check the tax effect before you switch.
For related reading, see our guides to opening a demat account online, the future of the online share market in India and choosing a pension plan.
This article is general information, not investment advice. Mutual fund investments are subject to market risks; read all scheme-related documents carefully, and check the current expense ratio on the fund house’s website before you invest.
Frequently asked questions
Is a direct mutual fund better than a regular one?
For the same scheme, the direct plan costs less, so it should give higher returns over time. It is “better” only if you are comfortable choosing and monitoring funds yourself or are paying a fee-only adviser.
Is the portfolio of a direct plan different from the regular plan?
No. Both plans invest in the same securities and are managed by the same fund manager. Only the expenses, and therefore the NAV, differ.
Can I switch from a regular plan to a direct plan?
Yes, but the switch is treated as a redemption and a fresh purchase. Exit load and capital gains tax may apply, so check before you switch.
Are direct mutual funds safe?
A direct plan is no more or less risky than the regular plan of the same scheme. The risk depends on what the scheme invests in, such as equities or debt.
Do I need a demat account for direct mutual funds?
No. You can hold mutual fund units in statement of account form through the fund house or MF Central. A demat account is needed only if you buy through a platform that holds units in demat form.
Checked in October 2026 against SEBI’s September 2012 circular on direct plans, SEBI’s June 2023 framework for execution-only platforms, fund house notices on the SEBI (Mutual Funds) Regulations, 2026, and AMFI’s monthly industry data for August 2026.
