Guides / Expense Ratio and Direct vs Regular Funds: Why 1% Matters

Expense Ratio and Direct vs Regular Funds: Why 1% Matters

Every mutual fund charges a yearly fee called the expense ratio. It is taken from the fund's returns, so you never see a bill.

Direct vs regular plans

A direct plan has no distributor commission, so its expense ratio is lower. A regular plan includes a commission and costs more every year.

What a 1% difference does

Assume ₹10,000 a month for 20 years. The fund earns 12% before costs in the direct plan and 11% after a higher fee in the regular plan.

The 1% difference costs about ₹12.6 lakh. A 1.5% difference would cost even more. Try different rates in the SIP Calculator.

What to do

1. Compare the expense ratios of funds in the same category.
2. Consider direct plans if you are comfortable choosing funds yourself.
3. If you want advice, a fee-only advisor may cost less than a commission built into every year.
4. Do not choose only on cost. Fund quality, risk and your goals matter too.

Returns are assumptions, not guarantees.