Key idea
Every fund comes in two versions. One quietly pays a commission out of your returns for years; the other does not. The difference compounds.
The same mutual fund is sold as two plans. A regular plan is bought through a distributor or agent, and a commission is built into its cost every year. A direct plan is bought straight from the AMC, with no distributor commission, so its expense ratio is lower.
Same fund, two costs
Direct plan
- Bought straight from the AMC
- No distributor commission
- Lower expense ratio
- Higher returns to you
Regular plan
- Bought via a distributor / agent
- Commission built in yearly
- Higher expense ratio
- Lower returns to you
Why a small gap becomes large
The difference in expense ratio might look tiny, often around half a percent to one percent a year. But that gap is charged every single year and compounds over decades, so it can quietly cost a meaningful slice of your final corpus, for the exact same underlying fund and holdings.
A direct plan and a regular plan of the same fund own identical portfolios; only the cost differs. The trade-off is that a distributor may offer advice or convenience. Whether that is worth the ongoing cost is your call, but the difference is real and worth knowing.
Finished reading?
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