Mumbai: A fresh debate between investment platforms Zerodha and Groww has brought renewed focus to one of the most important choices mutual fund investors face—whether to invest through direct or regular plans.
The discussion gained traction after Groww introduced regular mutual fund plans under its subscription-based Groww Prime platform. The move drew criticism from Zerodha Co-founder and CEO Nithin Kamath, who argued that low-cost brokerages should not encourage investors to opt for higher-cost regular plans.
While the exchange has sparked industry-wide discussion, financial experts note that both direct and regular plans invest in the same mutual fund schemes. The key differences lie in the mode of purchase, expense ratio, advisory services and their impact on long-term returns.
What are direct mutual funds?
Direct mutual funds are purchased directly from an Asset Management Company (AMC) without involving distributors, brokers or financial advisers.
Since AMCs do not pay commissions to intermediaries for direct plans, these schemes carry a lower expense ratio. This means a larger portion of an investor’s money remains invested, allowing returns to compound more efficiently over time.
Investors can access direct mutual funds through an AMC’s website, registrar platforms or investment apps that facilitate direct investing.
For investors who are comfortable selecting and monitoring their own investments, direct plans generally offer higher long-term returns due to their lower annual costs.
What are regular mutual funds?
Regular mutual funds are sold through banks, distributors, brokers or financial advisers.
In these plans, the AMC pays commissions to intermediaries, and these costs are included in the scheme’s expense ratio. As a result, regular plans typically have higher annual charges than direct plans.
However, investors choosing regular plans receive professional assistance with financial planning, fund selection, asset allocation and portfolio reviews, making them suitable for individuals who prefer expert guidance.
Why expense ratios matter
The expense ratio represents the annual fee charged by a mutual fund for managing investors’ money.
Although the difference between direct and regular plans may appear modest—typically around 0.5 to 1 percentage point annually—it can significantly affect long-term wealth creation because of compounding.
For example, consider an investment of Rs 10 lakh over 20 years, assuming the fund earns 12 per cent annually before expenses.
- A direct plan with an expense ratio of 0.7 per cent would generate a net annual return of approximately 11.3 per cent.
- A regular plan with an expense ratio of 1.7 per cent would reduce the net annual return to about 10.3 per cent.
While the annual difference appears relatively small, it could translate into several lakh rupees in additional wealth over two decades.
Direct vs regular mutual funds
| Feature | Direct mutual funds | Regular mutual funds |
|---|---|---|
| Purchase mode | Directly from the AMC | Through a distributor or adviser |
| Expense ratio | Lower | Higher |
| Commission | No distributor commission | Includes distributor commission |
| Long-term returns | Generally higher | Slightly lower due to higher costs |
| Best suited for | Experienced, self-directed investors | Beginners and those seeking professional advice |
Which option should investors choose?
The choice between direct and regular plans depends largely on an investor’s knowledge, experience and financial planning needs.
Investors who understand mutual funds, are confident in selecting schemes and can periodically review their portfolios may benefit from direct plans because of their lower costs.
On the other hand, first-time investors or those seeking personalised financial advice may find regular plans more suitable despite the higher expense ratio, as they provide access to professional guidance and ongoing portfolio support.
Experts advise investors to evaluate the value of advisory services relative to the additional costs before making a decision.
Zerodha and Groww exchange views
The latest debate began after Groww launched regular mutual fund offerings through its Groww Prime subscription.
Responding to criticism, Groww clarified on X that there had been “confusion and misinformation” surrounding its mutual fund strategy. The company said direct mutual funds continue to remain the foundation of its platform and will remain available free of cost for do-it-yourself investors.
Meanwhile, Zerodha Co-founder Nithin Kamath reiterated the company’s commitment to direct mutual funds.
“You can’t call yourself a discount or a low-cost broker if you charge a percentage fee on transactions, because there’s no incremental effort in executing a larger order. This logic has informed all our product and pricing decisions from day one. Anyway, Zerodha’s Coin today is the largest direct mutual funds platform in India,” Kamath said in a post on X.
The discussion has renewed investor interest in understanding the practical differences between direct and regular mutual funds, underscoring the importance of matching investment choices with individual financial goals and advisory needs.