How to switch from Regular to Direct mutual fund plans?

If you’ve been investing in mutual funds through a bank, financial advisor, or online broker, there’s a good chance you’re in a Regular Plan and unknowingly paying a commission that quietly chips away at your returns every single year.

Direct mutual fund plans, introduced by SEBI in 2013, let you buy funds straight from the Asset Management Company (AMC) with no distributor commission in the picture. The result is a lower expense ratio, a higher NAV, and meaningfully more wealth over time.

The gap between a regular and direct plan can be as small as 0.5% a year. But thanks to compounding, that seemingly small difference can grow into lakhs of rupees over a 10 to 20 year investment horizon.

Difference between Regular and Direct plans

When you invest in a mutual fund through a distributor (a bank, broker, or advisor), they earn a trail commission, typically 0.5% to 1.5% of your invested amount every year. That commission is embedded in the fund’s expense ratio, which is why regular plans cost more than their direct counterparts. Both plans invest in the exact same portfolio of stocks or bonds. The only difference is what you pay.

Feature	Regular Plan	Direct Plan
Expense Ratio	Higher (1.5%–2.5%)	Lower (0.5%–1.2%)
Distributor Commission	Included (paid by you)	None
NAV	Lower NAV	Higher NAV
Where to Buy	Banks, Brokers, Advisors	AMC website, MF Utility etc
Advisor Guidance	Provided by distributor	Self-managed
Long-term Returns	Lower (eroded by fees)	Higher (more compounding)

How much does the expense ratio difference actually matter?

Three realistic scenarios show how much the expense ratio gap costs investors over time. All examples assume a 12% annual return (gross) before fees, with typical expense ratios for each plan type.

Example 1: Lump sum investment of Rs 5 lakh

You invest Rs 5,00,000 in an equity mutual fund. Regular plan expense ratio: 1.8%. Direct plan expense ratio: 0.6%. Net returns: 10.2% (regular) vs 11.4% (direct).

Rs 5 lakh lump sum, regular (10.2% net) vs direct (11.4% net):

Year	Regular Plan Value	Direct Plan Value	Extra Savings	Savings %
5 Years	₹8,18,000	₹8,55,000	₹37,000	4.5%
10 Years	₹13,37,000	₹14,61,000	₹1,24,000	9.3%
15 Years	₹21,85,000	₹24,96,000	₹3,11,000	14.2%
20 Years	₹35,70,000	₹42,65,000	₹6,95,000	19.5%
25 Years	₹58,33,000	₹72,88,000	₹14,55,000	24.9%

Example 2: Monthly SIP of Rs 10,000

You run a monthly SIP of Rs 10,000. Regular plan net return: 10.5%. Direct plan net return: 11.7%. This is the most common scenario for retail investors.

Rs 10,000 per month SIP, regular (10.5% net) vs direct (11.7% net):

Year	Regular Plan	Direct Plan	Extra Savings	Savings %
5 Years	₹7,90,000	₹8,10,000	₹20,000	2.5%
10 Years	₹20,85,000	₹21,85,000	₹1,00,000	4.8%
15 Years	₹44,80,000	₹48,50,000	₹3,70,000	8.3%
20 Years	₹87,20,000	₹97,60,000	₹10,40,000	11.9%
25 Years	₹1,60,00,000	₹1,85,00,000	₹25,00,000	15.6%

Example 3: Monthly SIP of Rs 25,000 (aggressive saver)

Rs 25,000 per month SIP over 20 years. Regular plan net return: 10.2%. Direct plan net return: 11.5%. This shows the outsized impact of direct plans for higher-income investors.

Rs 25,000 per month SIP, regular (10.2% net) vs direct (11.5% net):

Year	Regular Plan	Direct Plan	Extra Savings	Savings %
5 Years	₹19,20,000	₹19,80,000	₹60,000	3.1%
10 Years	₹49,50,000	₹52,50,000	₹3,00,000	6.1%
15 Years	₹1,04,00,000	₹1,14,00,000	₹10,00,000	9.6%
20 Years	₹2,00,00,000	₹2,27,00,000	₹27,00,000	13.5%
25 Years	₹3,72,00,000	₹4,36,00,000	₹64,00,000	17.2%

A Rs 25,000 per month SIP investor can accumulate over Rs 64 lakh more over 25 years simply by switching to a direct plan. That’s money that belongs in your portfolio, not a distributor’s pocket.

How to switch from Regular to Direct plans

Switching is simpler than most people think. Here’s how to do it step by step.

Step 1: Identify your current holdings

Log in to your broker or AMC account and check the plan type of each fund you hold. If you see “(Regular)” or “(G)” after the fund name, you’re in a regular plan. You can also pull a Consolidated Account Statement (CAS) through NSDL, CDSL, or your broker.

Step 2: Open a direct plan account

You can invest directly through:

• AMC websites directly (SBI MF, HDFC MF, ICICI Prudential, etc.)

• MF Utility (mfuonline.com), a single platform across all AMCs

• MF Central (mfcentral.com), the official AMFI platform

Step 3: Complete your KYC

If you’re already KYC-compliant (which most existing investors are), you can proceed directly. If not, complete eKYC using Aadhaar and PAN on any of the platforms above; it takes under ten minutes.

Step 4: Submit a switch request

A “switch” means redeeming units from your regular plan and reinvesting them in the direct plan of the same fund. It’s treated as a redemption for tax purposes.

• Log into the AMC website or MF Utility

• Select “Switch” transaction

• Choose source: your regular plan fund

• Choose destination: the direct plan equivalent of the same fund

• Specify units or amount to switch

• Confirm and submit

Tax note: Switching is treated as a redemption. Short-term capital gains (STCG) apply if held under 1 year for equity funds; long-term capital gains (LTCG) apply if held 1 year or more, taxed at 12.5% above Rs 1.25 lakh. Plan the timing to minimise your tax outgo.

Step 5: Set up a new SIP in the direct plan

Once switched, set up a fresh SIP in the direct plan on your chosen platform. Cancel or pause your old regular plan SIP to avoid continuing to invest in the regular plan.

Tax-smart switching strategy

Don’t switch everything at once. Here’s a smarter approach:

1. Stop all new SIPs in the regular plan immediately. Start fresh SIPs in the direct plan.

2. Switch in phases. Switch holdings that are older than 1 year first (to qualify for LTCG rates). Switch younger holdings after they complete 1 year.

3. Harvest losses: If some funds are at a loss, switch those first. The loss can be set off against other capital gains.

4. Switch at the end of a financial year to plan taxes better across two assessment years.

Common myths about direct plans

Myth 1: “Direct plans are only for experts.”

AMC websites and platforms like Groww make investing in direct plans just as straightforward as regular plans. The switch itself takes minutes.

Myth 2: “I’ll lose my advisor’s support.”

You can hire a SEBI-registered investment advisor (RIA) who charges a flat fee and recommends direct plans. In most cases, this costs far less than the embedded commissions you’re currently paying.

Myth 3: “Switching will trigger huge taxes.”

With a phased, strategic approach, you can minimise your tax outgo substantially. Most long-term holders can switch the bulk of their portfolio at the LTCG rate of 12.5%.

Myth 4: “The returns are the same.”

The underlying portfolio is the same, but the direct plan’s lower expense ratio means a higher NAV that compounds faster. Over 10 to 20 years, that difference is dramatic.

Switching from regular to direct is one of the highest-impact, lowest-effort financial decisions you can make. The process is simple, the platforms are free, and the long-term savings can run into tens of lakhs.

Disclaimer

The content on this website is for informational and educational purposes only and should not be construed as investment advice, a recommendation, or a solicitation to buy or sell any security, mutual fund, or financial instrument. Equity Research India is not a SEBI-registered investment advisor or research analyst, and nothing on this site constitutes personalized financial advice.

Mutual fund investments are subject to market risks. Please read all scheme-related documents carefully before investing. Past performance is not indicative of future returns. NAV, returns, rankings, and other data may change and may not reflect the most current information at the time of reading.

Readers should conduct their own due diligence and consult a SEBI-registered financial advisor before making any investment decisions. Equity Research India and its authors accept no liability for any loss or damage arising from the use of this content.