Direct and Regular Plans
Every scheme has a regular plan and a direct plan. This lesson explains what is the same in both, what differs, who may deal in each, and how a gap in expense ratios is worked out in rupees.
Two plans of one scheme
Every scheme has two plans. A regular plan is bought through a distributor, and its expense ratio includes the distribution commission the fund house pays that distributor. A direct plan is bought without a distributor and carries no distribution commission.
Direct plans have been compulsory for every scheme since 1 January 2013. There is no third plan.
What is the same and what differs
The portfolio is the same in both plans: the same securities and the same risks. Only the cost differs.
Because the direct plan carries no distribution commission, its expense ratio is lower. Expenses are charged within the NAV every day, so each plan has its own separate NAV, and the direct plan's NAV pulls ahead of the regular plan's over time. Both NAVs rise and fall with the market. Neither plan reduces market risk, and units in both can lose value.
Who deals in which plan
A distributor deals only in regular plans and cannot deal in direct plans. An investor who buys through a distributor is therefore in the regular plan, and the distributor is paid by the fund house out of that plan's expenses.
The gap between the two expense ratios differs from scheme to scheme and is found in each scheme's published figures. Performance disclosures state which plan they show. An exit load is not charged on a switch between the regular and direct plans of the same scheme, but the switch is still a redemption from one plan and a purchase in the other, so tax on any capital gain may apply. Which plan a person uses is that person's own decision; the rules require that both exist and that the difference is disclosed.
Rules at a glance
Two NAVs for one portfolio (illustrative)
A scheme launched its regular and direct plans on the same day at the same NAV. Some years later the regular plan's NAV is ₹38.20 and the direct plan's is ₹40.10. The figures are invented.
Nothing in the portfolio explains the difference: both plans own the same securities in the same proportions. The gap has built up because the regular plan bears a higher expense ratio every day. If the value of the portfolio falls by a tenth, both NAVs fall by about a tenth.
A gap in expense ratios, in rupees (illustrative)
- Illustrative figures: the regular plan of a scheme has a total expense ratio of 1.50% a year and the direct plan 0.90% a year. Actual expense ratios differ from scheme to scheme.
- Gap in expense ratio = 1.50% − 0.90% = 0.60%.
- On a holding that averages ₹3,00,000 over a year: 3,00,000 × 0.60% = ₹1,800 for the year.
- Spread over the year, that is 1,800 ÷ 365 = about ₹4.93 a day, charged within the NAV and not billed.
Result. On these figures about ₹1,800 more is charged in the regular plan for the year on a ₹3,00,000 holding. The gap mainly reflects the distribution commission carried by the regular plan.
Key points
- The regular and direct plans of a scheme hold the same portfolio; they differ only in cost.
- The direct plan carries no distribution commission, so its expense ratio is lower and its NAV is separate and higher.
- Direct plans have been compulsory for every scheme since 1 January 2013.
- A distributor deals only in regular plans and cannot deal in direct plans.
- Neither plan reduces market risk: units in both can lose value.
Common misunderstandings
- The direct plan is not a different or riskier portfolio: both plans hold the same securities and carry the same market risk.
- A higher NAV does not mean the direct plan's units are dearer for the same thing: each plan has its own NAV, and the difference reflects lower expenses over time.
- A distributor cannot offer the direct plan: it deals in regular plans only.
Questions people ask
Why is the regular plan's expense ratio higher?
Because it includes the distribution commission that the fund house pays the distributor. The direct plan carries no such commission.
Do the two plans perform differently because of what they hold?
No. The portfolio is the same. The returns differ only because the expenses differ.
Since when has every scheme had a direct plan?
Since 1 January 2013.
What this lesson relies on
- SEBI Master Circular for Mutual Funds, 20 March 2026 (direct plans; exit load; performance disclosure)
- SEBI (Mutual Funds) Regulations, 2026, regulations 66 and 67 (expenses)
- AMFI Master Circular for mutual fund distributors
This lesson was reviewed independently against these sources on 8 October 2026. Rules change: check the current regulation, scheme document or policy wording before relying on any figure. This is education, not advice.