Direct Plan
A mutual fund plan bought directly from the AMC, without a distributor commission built into the cost.
Direct and regular plans hold the same portfolio and the same manager; only the expense ratio differs. The saving shows up as a higher NAV over time in the direct plan.
Why Direct Plan matters when comparing products
Direct plans offer a lower expense ratio compared to regular plans because they bypass distributor commissions. This difference, though seemingly small annually, compounds significantly over the long term. For Indian investors, understanding this distinction is crucial as it directly impacts the net returns on their investments, leading to potentially higher wealth accumulation from the same underlying portfolio.
Illustrative example
Consider two plans of the same mutual fund: a direct plan with a 0.5% expense ratio and a regular plan with 1.5%. An investment of ₹1,00,000 growing at 10% annually before expenses. After 10 years, the direct plan would have saved ₹12,500 more in expenses compared to the regular plan, demonstrating how the expense ratio difference accumulates over time.