Mutual Fund plans explained: Direct vs Regular

What is a direct plan?

Contrary to the regular plan, there is no involvement of third-party agents in the case of direct plans as the investors directly purchase units of the Mutual Fund from the AMC. Thus, an AMC does not have to pay a commission for direct mutual fund schemes. Accordingly, a direct plan has a lower expense ratio, which allows investors to earn higher returns (differential of the expense ratio charged to the Regular Plan vis-a-vis the Direct Plan).

What is a regular plan?

A regular plan is a mutual fund plan that one can invest in via third-party agents (brokers Mutual Fund Distributors etc). These intermediary agents impose certain charges (commission) on the asset management company for selling the scheme to investors.
Let’s say a regular plan has an expense ratio (yearly managing fee) of 2%. Out of this, brokers or distributors claim 1%, while the fund house keeps the remaining amount as management fees and other administrative costs directly attributable to the schemes as allowed under the SEBI (Mutual Fund Regulations).

How can you invest in direct schemes of Zerodha mutual funds and save extra?

As Zerodha Mutual Fund only offers a direct plan for all its schemes, investors can earn an extra return by investing in mutual funds through the direct plan. There are various digital platforms that enable investors to invest in direct plans of the Zerodha Mutual Fund and save on distributors' commission which is added to the investor’s return.