The debate between Zerodha and Groww has renewed attention on one of the most common decisions mutual fund investors face: whether to choose direct or regular plans. While both invest in the same mutual fund schemes, they differ in how investors access them, the costs they incur and the long-term impact those costs can have on returns.
The discussion gained momentum after Groww introduced regular mutual fund plans through its subscription-based Groww Prime platform. The move prompted criticism from Zerodha co-founder and Chief Executive Officer Nithin Kamath, who said low-cost brokerages should not encourage investors towards higher-cost regular plans.
The renewed public exchange has highlighted the distinction between direct and regular mutual funds, particularly for first-time investors. Although both options provide access to the same portfolio managed by the same asset management company (AMC), the presence or absence of intermediaries affects the expense ratio and, over time, investor returns.
What Are Direct Mutual Funds?
Direct mutual funds are bought directly from an AMC without using a distributor, broker or financial adviser.
Because AMCs do not pay commissions to intermediaries, direct plans have a lower expense ratio. That allows a larger share of an investor's money to remain invested, which can improve long-term returns through compounding.
Investors can buy direct plans through an AMC's website, registrar platforms or investment applications that offer direct mutual fund investing.
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What Are Regular Mutual Funds?
Regular mutual funds are sold through banks, distributors, brokers or financial advisers.
AMCs pay commissions to these intermediaries, and those costs are included in the fund's expense ratio. As a result, regular plans carry higher annual costs than direct plans.
In return, investors receive assistance with financial planning, fund selection and portfolio management.
Why The Expense Ratio Matters
The expense ratio represents the annual fee a mutual fund charges to manage its portfolio.
Even a difference of 0.5% to 1% a year between direct and regular plans can have a significant effect on long-term wealth because investment returns compound over time.
For example, an investment of Rs 10 lakh for 20 years earning 12% annually before expenses would generate different outcomes depending on the expense ratio.
A direct plan with a 0.7% expense ratio would deliver an estimated net annual return of about 11.3%. A regular plan with a 1.7% expense ratio would reduce the net annual return to about 10.3%.
Although the difference appears small in percentage terms, it can amount to several lakh rupees over two decades.
Which Plan Should Investors Choose?
Direct and regular mutual funds serve different types of investors.
Those who understand mutual funds and are comfortable managing their own investments may prefer direct plans because of their lower costs.
| Feature | Direct Mutual Funds | Regular Mutual Funds |
| Purchase mode | Directly from the AMC | Through a distributor or advisor |
| Expense ratio | Lower | Higher |
| Commission | No distributor commission | Includes distributor commission |
| Returns | Usually higher over the long term | Slightly lower due to higher costs |
| Suitable for | Experienced investors | Beginners and investors seeking advice |
Regular plans may suit investors who want professional guidance on financial planning, fund selection and ongoing portfolio management.
Zerodha And Groww Exchange Views
The discussion intensified after Groww launched regular mutual fund offerings through Groww Prime.
Responding to criticism, Groww said in a post on X that there had been "confusion and misinformation" about its mutual fund strategy. The company said direct mutual funds remain the foundation of its platform and will continue to be available free for do-it-yourself investors who are confident managing their own investments.
Kamath criticised rival platforms for promoting regular mutual funds while reiterating Zerodha's focus on direct plans.
"You can't call yourself a discount or a low-cost broker if you charge a percentage fee on transactions, because there's no incremental effort in executing a larger order. This logic has informed all our product and pricing decisions from day one. Anyway, Zerodha's Coin today is the largest direct mutual funds platform in India," Kamath said in a post on X on July 9.
ALSO READ: 'Disappeared Or Pivoted': Nithin Kamath Takes Swipe As Groww Shifts To Regular MFs
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