Mutual fund investors often spend considerable time choosing the right scheme, comparing past performance, risk levels and investment categories. However, another decision can also have a meaningful impact on long-term returns: whether to invest through a direct plan or a regular plan.

Most mutual fund schemes offer both options. The underlying portfolio, fund manager and investment objective generally remain the same, but the route through which an investor enters the scheme is different. That difference affects the expense ratio and, over a long investment period, can influence the final value of the investment.

Direct mutual fund plans have been gaining popularity among retail investors, mainly because they usually carry lower costs than their regular counterparts. Recent industry data also indicates that more investors are choosing to manage their mutual fund investments without going through distributors.

What Is the Difference Between Direct and Regular Mutual Fund Plans?

A mutual fund scheme can typically be purchased through either a direct or regular route.

In a direct plan, investors purchase units directly from the asset management company or through platforms that offer direct mutual fund investing without distributor commissions.

A regular plan, on the other hand, is generally purchased through a mutual fund distributor, adviser or intermediary who facilitates the investment.

Importantly, choosing direct instead of regular does not mean investing in a completely different portfolio. Both versions usually belong to the same mutual fund scheme and invest according to the same investment mandate.

The major difference lies in their cost structure.

Why Direct Plans Usually Have a Lower Expense Ratio

Every mutual fund charges investors an expense ratio to cover expenses associated with managing and operating the scheme.

Direct plans generally have a lower expense ratio because they do not include distributor commissions in the same way regular plans do.

Regular plans usually have a higher expense ratio because part of the cost is associated with distribution and intermediary services.

Even a seemingly small difference in annual expenses can become significant over several years because mutual fund investments benefit from compounding. Lower annual costs mean a slightly larger portion of the investment remains invested.

As a result, the net returns generated by the direct version of a scheme can be higher than those of its regular version, assuming all other factors remain the same.

Retail Investors Are Increasingly Choosing Direct Plans

The preference for direct mutual fund investing appears to be rising.

According to an analysis of Association of Mutual Funds in India (AMFI) data by CRISIL Intelligence, the share of direct plans in mutual fund assets held by retail investors increased significantly over the five years ending March 2026.

Direct plans accounted for around 21.4% of retail mutual fund assets in March 2021. By March 2026, the share had increased to 36.7%.

In simple terms, direct plans represented a little more than one-fifth of retail mutual fund assets five years earlier. By March 2026, their share had moved closer to one-third.

The trend suggests that a growing number of investors are becoming comfortable selecting and managing mutual fund investments themselves.

Direct Plans Now Hold a Large Share of Industry Assets

The increase is visible at the overall mutual fund industry level as well.

As of March 2026, assets under management in direct plans were reported at around ₹33.28 lakh crore, representing approximately 45.1% of the mutual fund industry's total assets.

In March 2021, direct plans accounted for about 43.4% of total industry assets.

Meanwhile, the share of regular plans declined from approximately 56.6% to 54.9% during the same period.

Despite the gradual shift toward direct investing, regular plans continued to account for the larger share of mutual fund assets. Their assets under management stood at around ₹40.46 lakh crore in March 2026.

These numbers indicate that while direct plans are becoming increasingly popular, a significant proportion of investors still prefer investing through intermediaries.

Why NAV Differs Between Direct and Regular Plans

Investors may notice that the Net Asset Value, or NAV, of the direct and regular versions of the same scheme is different.

This does not necessarily mean that one version is investing in better securities.

The difference develops primarily because the expense ratios are different. Since direct plans generally deduct lower expenses, their NAV can grow differently over time compared with the regular version of the same scheme.

This cost advantage can become more visible when an investment is held for many years.

Is a Direct Plan Always the Better Choice?

Lower expenses make direct plans attractive, particularly for investors who are comfortable researching schemes, understanding risk and handling their portfolios independently.

However, the cheapest route may not necessarily be the most suitable route for every investor.

A beginner who struggles with asset allocation, risk assessment or portfolio selection may value professional assistance. Some investors may also prefer an intermediary who can help with investment processes and ongoing portfolio discussions.

Regular plans provide this distribution or advisory support, although investors effectively pay for it through the higher expense ratio.

Direct plans may be more suitable for investors who understand mutual funds well enough to select, monitor and rebalance investments themselves.

Do Not Choose a Fund Only on the Basis of Expense Ratio

The expense ratio is important, but it should not be the only factor considered while selecting a mutual fund.

Investors should also examine the scheme's investment objective, category, underlying portfolio, risk level, investment horizon and whether the fund fits their financial goals.

Historical returns should also be viewed carefully because past performance does not guarantee future results.

For example, choosing a low-cost equity scheme may still be inappropriate for someone who needs the money in the near term or is uncomfortable with market volatility.

The first decision should therefore be whether the mutual fund itself is suitable. The second decision is whether the direct or regular route is better for the investor.

Direct or Regular: Which One Should You Choose?

For investors capable of independently selecting and monitoring mutual funds, a direct plan can offer a clear cost advantage. The lower expense ratio may help improve net returns over a long investment horizon.

Regular plans remain useful for investors who want assistance from a distributor or intermediary and are comfortable paying a higher ongoing cost for that support.

Ultimately, both routes invest in the same underlying scheme. The real difference lies in how the investment is made, how much it costs and how much assistance the investor receives.

Before investing, individuals should evaluate not only potential returns but also their own financial knowledge, risk tolerance and need for professional guidance. A seemingly small annual cost difference can become meaningful over many years, making the direct-versus-regular decision an important part of long-term mutual fund planning.

Disclaimer: Mutual fund investments are subject to market risks. Investors should read scheme-related documents carefully and consider their financial goals and risk profile before investing.