Direct vs Regular Mutual Fund: What It Costs You and How to Switch Without Extra Tax (2026)
Direct and regular plans hold the same portfolio, but one costs more every year. See the real difference on a SIP, how to check your plan, and how to switch from regular to direct without paying extra tax.
On this page 9 sections
- 01Direct vs regular mutual fund: the difference
- 02How much does a regular plan cost you?
- 03Step 1: Check whether you hold direct or regular plans
- 04Step 2: Move future investments first (no tax)
- 05Step 3: Decide whether to switch old units
- 06Step 4: Place the switch
- 07When a regular plan still makes sense
- 08Frequently asked questions
- 09Related guides and calculators
A direct mutual fund plan and a regular plan of the same scheme hold exactly the same stocks and bonds, under the same fund manager. The only difference is cost. A regular plan pays a distributor commission every year from your money, so its expense ratio is higher and your returns are lower. From 1 November 2026, SEBI has made direct plans the default on AMC apps. This guide shows how to check which plan you hold, what it costs you, and how to switch without paying unnecessary tax.
Short answer: if you can pick and review funds yourself, a direct plan is usually better. To switch, stop the regular SIP and start a new direct SIP (no tax). Move old units only when exit load is over and tax is low.
Key takeaways
- Same fund, lower cost: direct plans skip distributor commission.
- Higher NAV: the direct plan NAV grows a little faster every year because less is deducted.
- Switching = selling: moving old units from regular to direct counts as a redemption for tax and exit load.
- Free move: redirecting future SIP instalments to direct costs nothing.
- Equity tax (FY 2026-27): 20% on gains within 12 months; 12.5% on long-term gains above ₹1.25 lakh a year.
Direct vs regular mutual fund: the difference
| Direct plan | Regular plan | |
|---|---|---|
| Where you buy | AMC website/app, MF Central, direct-plan apps | Distributor, bank, broker or agent |
| Distributor commission | None | Paid every year from the scheme |
| Expense ratio | Lower | Higher |
| NAV | Higher (grows faster) | Lower |
| Portfolio and fund manager | Same | Same |
| Advice and hand-holding | You do it yourself | Comes with the distributor |
How much does a regular plan cost you?
The cost gap looks tiny each year, but it compounds on your whole corpus. For a ₹10,000 monthly SIP over 20 years (₹24 lakh invested), assuming 12% a year in the direct plan:
| Yearly cost gap | Direct plan value | Regular plan value | You lose |
|---|---|---|---|
| 0.5% | ≈ ₹99.9 lakh | ≈ ₹93.4 lakh | ≈ ₹6.5 lakh |
| 1.0% | ≈ ₹99.9 lakh | ≈ ₹87.4 lakh | ≈ ₹12.6 lakh |
Returns are assumptions for illustration, not a promise. Run your own numbers in the SIP calculator by entering two return rates.
Step 1: Check whether you hold direct or regular plans
- Download your CAS (Consolidated Account Statement) from CAMS, KFintech or MF Central using your PAN and email.
- Look at each scheme name. It ends with “Direct Plan” or “Regular Plan”.
- Note the purchase dates of regular-plan units. You need them to work out tax and exit load.
Step 2: Move future investments first (no tax)
- Cancel the existing SIP in the regular plan on the platform where it runs.
- Start a fresh SIP of the same amount in the direct plan of the same scheme, on the AMC website or app, MF Central, or a direct-plan app.
- Keep the old units invested for now. They keep growing.
This one step stops the commission on all your new money from today.
Step 3: Decide whether to switch old units
Moving existing units means the fund sells them in the regular plan and buys in the direct plan. Check three things first:
Exit load
Many equity funds charge an exit load (often 1%) if units are redeemed within a set period, commonly one year. Check the scheme document and wait until that period is over.
Capital gains tax
- Equity funds held under 12 months: short-term gains taxed at 20%.
- Equity funds held 12 months or more: long-term gains above ₹1.25 lakh in a financial year are taxed at 12.5%.
- Debt funds bought on or after 1 April 2023: gains are taxed at your slab rate.
Smart move: switch long-held units gradually, keeping each year’s long-term gains within the ₹1.25 lakh exemption. That way you may pay little or no tax.
Lock-in
ELSS (tax-saving) units are locked in for 3 years from each purchase and cannot be switched until the lock-in ends.
Step 4: Place the switch
- Log in to the AMC website or MF Central with your PAN.
- Choose Switch, pick the regular plan as the source and the direct plan of the same scheme as the target.
- Select the units (unlocked, exit-load-free ones first) and confirm with OTP.
- Check your next CAS to confirm the new direct-plan units.
When a regular plan still makes sense
Choose a regular plan, or a fee-based SEBI-registered investment adviser, if you need help picking funds, rebalancing and staying invested when markets fall. Paying 0.5–1% for advice that keeps you disciplined can be worth it. Paying it for no service is not.
Frequently asked questions
Is a direct mutual fund better than a regular one?
For the same scheme, the direct plan has a lower expense ratio, so it usually gives higher returns. The regular plan is worth it only if you value the advice and service that comes with it.
Is switching from regular to direct taxable?
Yes. A switch counts as a redemption. Equity gains are taxed at 20% if held under 12 months, and long-term gains above ₹1.25 lakh a year are taxed at 12.5%. Exit load may also apply.
How do I know if my mutual fund is direct or regular?
Check your CAS from CAMS, KFintech or MF Central. Each scheme name ends with Direct Plan or Regular Plan.
Can I change my SIP from regular to direct without tax?
Yes, for future instalments. Stop the regular SIP and start a new SIP in the direct plan of the same scheme. Only the old units, if you move them, are taxed.
Why is the direct plan NAV higher?
Because a lower expense ratio is deducted from the fund every day, the direct plan NAV grows a little faster than the regular plan NAV.
Related guides and calculators
- SEBI makes direct plans the default on AMC apps
- SIP calculator
- FD vs SIP calculator
- SIP needed for ₹1 crore
This article is for education only and is not investment, tax or legal advice. Check the official notification or speak to a SEBI-registered adviser or CA before acting.
Sources: Business Today: direct plans become default on AMC apps · Angel One: Budget 2026 keeps LTCG at 12.5% · MF Central · AMFI. Read our editorial policy.
This guide is for information only and isn’t financial advice. Rates, fees and rules change — always confirm on the official website before you decide. Read our disclaimer.
