Every mutual fund scheme has a direct plan (no distributor commission) and a regular plan (commission included). Same portfolio, different cost. From 1 April 2026, the SEBI (Mutual Funds) Regulations, 2026 also changed how expense caps work.
Key takeaways
- Direct plans usually cost 0.5%–1% a year less in equity funds.
- New rules cap a Base Expense Ratio (BER) that excludes statutory levies (GST, STT, stamp duty, SEBI and exchange fees), which are now charged on actuals.
- Caps were reduced — e.g. index funds/ETFs 0.90%, closed-end equity 1.00%, other FoFs 1.85%.
- The extra 5 bps expense for schemes with exit loads was removed; brokerage caps were cut to 6 bps (cash) and 2 bps (derivatives).
How much does cost matter?
₹10,000 monthly SIP for 10 years, 12.5% gross return:
| Expense ratio | Net return | Estimated value |
|---|---|---|
| 0.5% (direct) | 12.0% | ≈ ₹23.2 lakh |
| 1.5% (regular) | 11.0% | ≈ ₹21.9 lakh |
A 1% difference costs about ₹1.3 lakh over 10 years here — and more over longer periods.
Direct or regular?
| You… | Choose |
|---|---|
| Research and review funds yourself | Direct |
| Pay a SEBI-registered investment adviser | Direct |
| Want a distributor to handle everything | Regular |
Switching from regular to direct
A switch is treated as a redemption — check exit loads and capital-gains tax first. Many investors switch only new SIPs and old units that are past exit-load and tax thresholds.
Your action checklist
- Define the goal, horizon and risk you can take.
- Pick the category first, then compare 2–3 funds on consistency and cost.
- Prefer direct plans if you do not need a distributor.
- Start a SIP with auto-debit and step it up yearly.
- Review once a year and rebalance instead of reacting to short-term moves.
FAQs
Why is the direct plan NAV higher?
Lower expenses mean more of the return stays in the NAV.
Is the expense ratio charged separately?
No, it is deducted daily from the NAV.
Details: Expense ratio 2026 · SEBI MF Regulations 2026.
