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Direct vs. Regular Mutual Funds: Which Offers Higher Returns?

Both the regular and direct versions of any mutual fund are the exact same fund, run by the same fund managers investing in the same stocks and bonds.

The difference is that in the case of direct mutual funds, there is no broker/distributor commission. Which means, as an investor, you get higher returns from the exact same mutual fund.

Low-cost direct mutual funds are slowly gaining popularity, especially among HNIs and corporate investors. However, many small investors are still stuck with high-cost regular plans. This is largely due to lack of awareness.

Even those who know that direct plans are cheaper when compared to regular plans often do not switch to direct as they are unaware of the extent to which a direct plan can increase their returns.

See for yourself in this article how the five-year returns of direct plans are significantly higher when compared to the regular plans.

The difference in Returns: Direct vs Regular

Direct plans of any mutual fund always give higher returns than their regular counterparts. Moreover, the higher returns keep compounding. That higher amount itself earns returns, and so on, over the years.

Here’s a comparison between the returns from the direct and regular plan of 10 mutual funds.

For simplicity, I have taken an initial investment amount of ₹ 10,00,000 (lump sum) in all examples.

1. SBI Bluechip Fund

This is a Large Cap Equity Oriented Mutual Fund launched on February 14, 2006. It is a fund with moderately high risk and has given a return of 11.79% (regular plan) since its launch.

The difference in returns from a direct and regular plan of this fund

Direct Regular Difference Initial investment amount ₹ 10,00,000 ₹ 10,00,000 0 Investment tenure 5 years 5 years 0 Avg. 5 Year Return 20.34 % 19.24 % 1.1 % Final return amount ₹ 25,23,771.53 ₹ 24,10,515 ₹ 1,13,256.53

As seen from the above table, there is a difference of ₹ 1,13,256.53 between returns from the direct and regular plan of this fund, with an initial investment amount of ₹ 10,00,000 for 5 years.

2. Reliance Top 200 Fund

This is a Large Cap Equity Oriented Mutual Fund launched on August 08, 2007. It is a fund with moderately high risk and has given a return of 11.89% (regular plan) since its launch.

The difference in returns from a direct and regular plan of this fund

Direct Regular Difference Initial investment amount ₹ 10,00,000 ₹ 10,00,000 0 Investment tenure 5 years 5 years 0 Avg. 5 Year Return 19.69 % 18.63 % 1.06 % Final return amount ₹ 24,56,344.84 ₹ 23,49,484.87 ₹ 1,06,859.97

As seen from the above table, there is a difference of ₹1,06,859.97 between returns from the direct and regular plan of this fund, with an initial investment amount of ₹ 10,00,000 for 5 years.

3. L&T Midcap Fund

This is a Mid Cap Equity Oriented Mutual Fund launched on August 09, 2004. It is a fund with high risk and has given a return of 21.64% (regular plan) since its launch.