Direct Plan and Regular Plan are two parallel variants that every SEBI-regulated mutual-fund scheme in India is required to offer. SEBI mandated the introduction of Direct Plans from 1 January 2013 through its circular dated 22 October 2012. Both plans invest in the same portfolio of securities managed by the same fund manager — the only difference is cost structure and the channel through which the investor accesses the scheme. (Source: SEBI Circular SEBI/IMD/CIR No.10/22701/09, October 22, 2012; sebi.gov.in.)
The structural difference:
- A Regular Plan is purchased through a distributor — an AMFI-registered mutual-fund distributor, bank, broker, or National Distributor. The scheme's Total Expense Ratio (TER) includes a distributor commission (also called trail commission), which the AMC pays to the distributor from the scheme's assets on an ongoing basis, typically ranging from 0.30% to 1.25% per annum for equity funds.
- A Direct Plan is purchased without an intermediary — either directly from the AMC via its investor portal, through a SEBI-registered investment adviser (RIA), or via platforms that transact in Direct Plans. The TER of the Direct Plan excludes the distributor commission, making it structurally lower-cost than the Regular Plan.
NAV divergence over time:
Because TER is deducted daily from scheme assets, and Direct Plans have lower TER, the Direct Plan NAV grows faster than the Regular Plan NAV of the same scheme even though the underlying portfolio performance is identical. Over long investment horizons, this compounding effect creates a material NAV divergence:
| TER Differential | NAV Divergence at 10 Years | NAV Divergence at 20 Years |
|---|---|---|
| 0.50% per annum | ~5.1% | ~10.5% |
| 1.00% per annum | ~10.5% | ~22.0% |
| 1.25% per annum | ~13.3% | ~28.0% |
Illustrative compound arithmetic; actual NAV performance depends on scheme returns, which are market-linked and not guaranteed.
An investor who has held a Regular Plan for several years will show a lower NAV than the same scheme's Direct Plan — this is not a loss but reflects the accumulated TER differential paid to the distributor. (Source: AMFI data on Direct vs Regular NAV series; amfiindia.com; SEBI Master Circular, June 2024.)
Who can access Direct Plans:
- Any investor who transacts directly via the AMC's website or investor portal.
- Investors using SEBI-registered investment advisers (RIAs), who are prohibited from accepting distributor commissions and hence route transactions through Direct Plans.
- Investors using MF Utilities (mfuindia.com), CAMS InstaAccess, or platforms that offer Direct Plan transactions.
Choosing between Direct and Regular:
The relevant comparison is not TER alone but TER differential versus the value of distributor service. Factors that inform this decision:
- Investors who are self-directed and track their own portfolio may find Direct Plans cost-efficient.
- Investors who value a distributor's role in fund selection, goal-based planning, rebalancing cues, and behavioural support may find the Regular Plan commission an acceptable cost of service.
- SEBI requires distributors to disclose their commission to investors annually in the Consolidated Account Statement (CAS) and on-request — investors can see what commission is being earned on their holdings. (Source: SEBI Master Circular, June 2024; sebi.gov.in.)
Switching from Regular to Direct:
Switching from a Regular Plan to the Direct Plan of the same scheme is treated as a redemption of Regular Plan units and a fresh purchase in the Direct Plan. This constitutes a taxable event — capital gains tax applies on the redemption based on holding period. Exit load (if applicable) is also assessed. Investors considering a switch should model the tax cost before acting. (Source: Income Tax Act, 1961, Sections 112A; incometax.gov.in; AMFI investor FAQ.)
Related terms: TER, NAV, Exit Load, AUM.
Disclosure: MintByte is an AMFI-registered mutual fund distributor (ARN-314872) and an APMI-registered Authorised Person of Motilal Oswal Financial Services (APRN-01658). Content is educational.