Asset Management Companies (AMCs) have two variants for any mutual fund scheme– a direct Mutual Fund and a regular Mutual Fund scheme. Both of these variants provide a similar composition of the portfolio. In addition to this, the Assets Under Management (AUM) are also similar. Moreover, these funds are handled by the same fund managers. However, there is one critical factor that differentiates these two types. That factor is the expense ratio. The expense ratio can be defined as the percentage you pay to the AMC to handle your money.


What are Direct Mutual Fund Schemes?

A Direct mutual fund plan is one that you can buy directly from the AMC. These plans are also sold by the Registered Investment Advisors (RIAs). The expense ratio of these direct schemes is comparatively lower than the regular ones. Thus, these funds generate more returns. These higher returns can be seen in higher NAV compared to the regular mutual fund plans.

What is a Regular Mutual Fund?

A Regular mutual fund plan is one that you can purchase with an advisor, broker, or distributor (intermediary). In a regular mutual fund scheme, the AMC pays commission to the intermediary, which is the reason behind the high expense ratios and low NAVs of regular mutual funds plans.

Regular plans of every Mutual fund scheme may cost you almost 1%-2% of your total investment amount. This occurs in the form of commissions laid out to your agents or brokers. To reduce this, you should consider switching to the Direct Mutual Funds Plans. These Direct plans don’t charge you any commissions. And thus, over a long investment period, these mutual fund plans offer you higher returns than regular mutual fund schemes.

How Direct Mutual Fund Schemes Work?

The Securities and Exchange Board of India (SEBI), in the year 2013, told the AMCs to introduce the plans with zero commission, i.e., Direct Mutual Fund plans for all their current mutual fund schemes. Therefore, now we have two schemes for all mutual funds: – Direct and Regular plans.

Every year, in the regular scheme, you pay a hidden cost of 1% – 2% in the form of commission to the intermediaries/brokers/agents. These commissions are paid to the mentioned entities from your investment amount and thus lower your returns. On the other hand, Direct Mutual fund plans do not charge commissions and provide better returns.

Ajay is doing a SIP of INR 10,000 every month in the ABSL Frontline Equity Regular fund, and he has been investing in the fund for 10 years. The annual return of this fund is 17.81%.

Let’s take Swati, who is doing a SIP of INR 10,000 in ABSL Frontline Equity fund Direct Plan. Let’s assume she also invested for 10 years. The annual return rate of the same fund indirect is 18.95%.

AJAY (Regular)Swathi (Direct)
Final AmountRs. 24.6 Lakhs Approx.Rs. 23 Lakhs Approx.
Invested AmountRs. 12 LakhsRs. 12 Lakhs
Wealth GainRs. 12.6 Lakhs Approx.Rs. 11 Lakhs Approx.


The difference in wealth creation in the same fund for the same time duration is INR 1.6+ lacs. This means Ajay has actually lost Rs1.6 lacs in commissions to his agent/broker, which he could have saved if he had gone “Direct.”

You might think 1.6 Lakhs is a big amount to lose. Let’s assume that these two continue the investments for the next 10 years.

For a duration of 20 years, considering the same investment amount, Ajay’s returns will be,

Ajay (Regular)Swathi (Direct)
Final AmountRs 97.4 Lakhs Approx.Rs 1.1 Crores Approx.
Invested AmountRs 24 LakhsRs 24 Lakhs
Wealth GainRs 73.4 LakhsRs 89.8 Lakhs Approx.

And Swati’s investments will generate,
The difference in returns after being invested for 20 years is INR 16.4 Lakhs. (That’s a lot of money, don’t you think?)

A study shows that only 11% of the investors investing in mutual funds know that Direct Mutual Funds exist. What you’ve seen above is an example of one fund where the commission is 1.09%. There are funds where investors may lose up to 2% as commissions per annum. If you apply the power of compounding, the results are humungous.

Investing in mutual funds is the most proven, safest, and efficient way of creating wealth. At Orowealth, being pioneers in the Direct Mutual Fund industry, we have taken a pledge to change the commission-driven model of investments and make investors take control over their personal finances. There is a common misconception that Direct mutual fund plans do not offer any advisory; another common myth is that these plans are only for financial market experts. But this certainly is not the case.

Orowealth’s proprietary OroAssist™ technology offers you custom-made portfolios based on your risk appetite and financial goals. OroAssist™ constantly checks your portfolio and informs you instantly if there are things to change. Over twenty thousand customers trust Orowealth, and they manage over Rs 600 Crores in assets under advisory. It is good to have the comfort of an actual human advisor you can trust for your investments. This is why

Orowealth also provides you the choice of a dedicated financial advisor who will take care of your specific financial needs and make a customized investment plan for you. There are no hidden costs or commissions when you transact with Orowealth. They also provide you with automatic rebalancing and human expertise as per your requirement. With Orowealth, you now have a smart way to make more with each investment without much hassle.

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Paul R. Finney
Coffee nerd. Travel expert. Music fanatic. Hardcore bacon specialist. Beer geek. Alcohol buff. Set new standards for managing chess sets for the government. Earned praise for deploying wooden horses for farmers. Spent several months importing jack-in-the-boxes worldwide. Spent 2001-2007 getting to know tobacco in the UK. Have a strong interest in testing the market for jump ropes in Los Angeles, CA. Enthusiastic about lecturing about wieners for fun and profit.