- Equity mutual funds grew at a CAGR of about 13% over the last decade under Regular Plans
- Individual investors hold 91% of active mutual fund folios, with rising B30 city participation
- Regular Plans have higher expense ratios due to distributor commissions, reducing investor returns
Equity mutual funds have demonstrated their wealth-creation potential over the last 10 years, clocking a compounded average growth rate (CAGR) of around 13% (under the Regular Plan). This is one of the key reasons for the significant rise in inflows into mutual funds by individual investors (retail and HNIs) - across scheme types - particularly in equity-oriented schemes, after the COVID-19 pandemic.
The total folio count has skyrocketed to 27.53 crore as of April 2026, of which individual investors (comprising retail and HNI) account for the vast majority, holding approximately 91% of all active folios. What's interesting is that while the Top 30 (T30) cities are the key contributors to the Indian mutual fund industry's Assets Under Management (AUM), participation from beyond the top 30 locations, referred to as the B30, is also increasing, mainly in equity-oriented schemes.
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However, data from the Association of Mutual Funds in India (AMFI) reveals that individual investors invest through distributors who offer the Regular Plan rather than the Direct Plan.
Direct Investment vs Investment Through Distributors Across Investor Types
Photo Credit: AMFI/Crisil Intelligence
Are you aware that when you invest through distributors under the Regular Plan, you pay a higher expense ratio?
You see, to cover distribution costs, which include incentivising intermediaries, fund houses levy a higher expense ratio on their mutual fund schemes under the Regular Plan than under the Direct Plan.
Most distributors, brokers, relationship managers at banks, agents, etc., place their clients' investments under the Regular Plan, since they assist with the investment process, such as submitting KYC documents and the application form, generating account statements, and placing redemption requests.
For these services, the fund house or asset management company pays regular commissions to distributors, brokers, banks, agents, etc., from the higher expense ratio it levies on investors under the Regular Plan. In other words, for investors, there aren't any free lunches. Ultimately, the higher expense ratio on the Regular Plan weighs on the investor's return.
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The Direct Plan
The Direct Plan of a mutual fund scheme, on the other hand, has a noticeably lower expense ratio. The capital market regulator, the Securities and Exchange Board of India (SEBI), introduced the direct plan for mutual funds in 2013 and made it mandatory for all mutual fund houses to offer this plan for all their schemes. The objective was to reduce costs for investors by eliminating the intermediaries.
The Direct Plan is available when you invest directly with the fund house or through investment platforms that offer it. Similarly, SEBI-registered investment advisers are mandated to advise and execute client investments exclusively through the Direct Plan of a mutual fund scheme. They are legally barred from earning any commissions or referral fees.
Since there are no intermediaries involved under the Direct Plan, mutual fund houses or AMCs do not incur distribution expenses, and hence the expense ratio is lower. The lower expense ratio under the Direct Plan makes a huge difference in the corpus you, as an investor, can build over the long term.
Direct Plan vs Regular Plan: Difference in the Corpus You Build
Take the case of HDFC Flexi Cap, a popular diversified equity mutual fund scheme with an AUM of over Rs 1 lakh crore as of April 2026. Under the Regular Plan, the expense ratio of this fund is 1.27%, while under the Direct Plan, it is 0.67%. If you choose the Regular Plan and invest Rs 10 lakh with a 25-year horizon, assuming a 12% CAGR, you would be able to build a corpus of around Rs 1.28 crore after adjusting for the expense ratio.
On the other hand, the same sum of money invested under the Direct Plan with a 25-year horizon, assuming a 12% CAGR, builds a corpus of around Rs 1.46 crore. That's a remarkable difference of Rs 18.49 lakh. You see, even if it had been a 0.5% difference in expense ratio between the Direct Plan and the Regular Plan, assuming a 12% CAGR over 25 years, it makes a huge difference. This highlights the merit of investing under the Direct Plan over the Regular Plan.
Who should opt for the Direct Plan?
If you are considering the Direct Plan of mutual fund schemes, conduct your research or depend on research reports and ratings published by mutual fund research entities. Make sure you have the skill set and knowledge to build, monitor, and manage your mutual fund portfolio before you follow a DIY approach - without the services of a distributor, broker, agent, or bank relationship manager.
Alternatively, if you need help and investment guidance but wish to opt for the Direct Plan of a mutual fund scheme, consider the fee-based services of a SEBI-registered investment adviser. If you have already invested in mutual funds under the Regular Plan, you can switch to the portfolio under the Direct Plan. However, keep in mind that this switch will be treated as a redemption and will be subject to the applicable exit load (if any), plus short- or long-term capital gains tax, depending on the holding period.
Note that the decision of mutual fund scheme selection should not be based solely on the expense ratio it levies or the returns it has made, but rather be far more holistic, based on the portfolio characteristics, the risk it has exposed its investors to, and the overall investment processes and systems followed at the fund house.
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To sum up
Choosing between the Direct Plan and a Regular Plan of a mutual fund scheme is a personal decision. That said, if you think you have sufficient knowledge of mutual funds or can get trustworthy investment advice, it makes sense to invest in a Direct plan.
When investing, ensure that you are not just focusing on the best mutual fund schemes out there, but also identifying which ones would be the most suitable ones for you as per your personal risk profile, broader investment objective, the financial goal/s you wish to address, and the time in hand to achieve those envisioned goal/s.
Be a thoughtful investor.
Happy investing!
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