Direct vs Regular Mutual Fund Calculator
A direct plan and a regular plan hold the same portfolio, run by the same manager, with the same returns before charges. The only difference is the commission built into the regular plan — and over twenty years it takes a startling share of the pot.
You keep
$1,334,813.81more on direct
- Direct plan
- $9,128,451.51
- Regular plan
- $7,793,637.70
- Difference
- $1,334,813.81
- Cost of the commission
- 14.6% of the pot
- Total invested
- $2,400,000.00
- Direct net return
- 11.40%
- Regular net return
- 10.20%
- The gap is $1,334,813.81 — about 56% of what you invested — from a charge difference of only 1.20 percentage points a year.
- The two plans hold the same portfolio, run by the same manager, with the same returns before charges. The only difference is that the regular plan's charge includes a commission paid to whoever sold it to you.
- A fee charged on the balance is not a one-off deduction. It lowers the growth rate permanently, so its cost compounds the same way the growth does — which is why a fraction of a per cent a year takes a large share of the final pot.
- Switching between plans of the same fund is normally a redemption and a fresh purchase, so exit loads and tax on gains can apply. Worth checking before moving an existing holding, and irrelevant for new money.
About direct and regular plans
Every mutual fund is sold in two versions. The regular plan pays a trail commission to whoever sold it to you, and that commission is paid out of the fund's annual charge. The direct plan has no distributor, so no commission, so a lower charge. Same portfolio, same manager, same holdings, same returns before costs.
The gap in charge is usually somewhere between half a per cent and a full point and a half a year on an equity fund. That sounds like a rounding error and is not, because a charge levied on the balance is not a one-off deduction — it is a permanent reduction in the rate at which the money grows. Its cost compounds exactly the way the growth does.
On a monthly investment of 10,000 over twenty years at 12% before charges, a direct plan at 0.6% ends at about 9.13 million and a regular plan at 1.8% ends at about 7.79 million. The difference is roughly 1.33 million — around 14.6% of the pot, and more than half of everything you put in — for a charge difference of 1.2 points.
None of which makes a regular plan indefensible. If a distributor is genuinely doing something for the commission — keeping you invested through a crash, stopping you chasing last year's winner, doing the paperwork you would otherwise not do — that can be worth more than the fee. The point of this page is to put a number on what the service costs, so it is a decision rather than a default.
What it will not tell you is which fund to buy. The charge difference is knowable and certain; the return is neither.
What it works out
- The same fund at two annual charges, side by side
- What the commission costs in money and as a share of the pot
- Monthly investing, a lump sum, or both together
- An annual step-up in the monthly amount
The formula
Net return = Return before charges − Expense ratio, then compounded on each plan separately
The expense ratio is charged against the fund's assets, so its effect is to lower the return rather than to take a slice off the end. A fund returning 12% before charges returns 11.4% to a direct investor paying 0.6%, and 10.2% to a regular investor paying 1.8%.
Both plans are then compounded on their own net rate. That is the whole model, and its simplicity is the point: the two numbers differ by 1.2 percentage points a year and nothing else about them differs at all.
Over twenty years of 10,000 a month, 11.4% reaches about 9.13 million and 10.2% reaches about 7.79 million. The 1.33 million gap is 14.6% of the larger pot. You contributed 2.4 million across those years, so the commission cost more than half of everything you put in.
The gap widens with time, and it widens faster than time does. Over ten years the same charge difference costs around 7% of the pot; over thirty it is over 20%. That acceleration is compounding working against you, and it is the reason a charge difference that looks trivial in year one is not.
- Return before charges
- What the portfolio earns before any fee. Identical for both plans, because it is the same portfolio.
- Expense ratio
- The fund's annual charge, published on its factsheet. The regular plan's includes the distributor's commission.
- Net return
- What actually compounds in your account.
- Step-up
- An annual increase in the monthly amount. Early increases matter most.
A worked example
10,000 invested every month for twenty years, at 12% before charges, in a direct plan charging 0.6% against a regular plan charging 1.8%.
That works out to $1,334,813.81 more on direct.
- Direct plan
- $9,128,451.51
- Regular plan
- $7,793,637.70
- Difference
- $1,334,813.81
- Cost of the commission
- 14.6% of the pot
- Total invested
- $2,400,000.00
- Direct net return
- 11.40%
- Regular net return
- 10.20%
Questions
What is the difference between a direct and a regular mutual fund plan?
Only the charge. A regular plan pays a trail commission to the distributor who sold it, funded out of the fund's annual expense ratio. A direct plan has no distributor and therefore a lower ratio. The portfolio, the manager and the holdings are identical.
How much more does a regular plan cost?
On the figures here — 10,000 a month for twenty years at 12% before charges — about 1.33 million, which is 14.6% of the direct plan's final value. The charge difference producing that is 1.2 percentage points a year.
Why does a small annual charge cost so much?
Because it is not a one-off deduction. A fee taken from the balance permanently lowers the rate at which the money grows, so its cost compounds exactly as the growth does. Every year the fee is charged on a larger balance, and the money it took in earlier years is no longer there to compound.
Is a direct plan always better?
It always costs less, which is not the same thing. If a distributor keeps you invested through a crash, stops you switching to whatever did well last year, or simply gets you to start at all, that can be worth more than the fee. Nobody else is going to tell you honestly whether it is.
How do I find the expense ratio for each plan?
On the fund's own factsheet, which lists the two plans separately. Do not use a category average — the gap varies a lot by fund and by fund house, and it is the specific pair you are choosing between that matters.
Can I switch my existing regular investment to direct?
Usually yes, but a switch between plans of the same fund normally counts as a redemption and a fresh purchase, so exit loads and tax on any gain can apply. Worth checking on an existing holding. For new money there is nothing to weigh.
Does the returns figure include the charge already?
The return you enter here should be before charges, because the calculator subtracts each plan's own ratio. Published past-performance figures are usually shown net of charges, so if you take a number from a factsheet, check which plan it refers to and add its ratio back.
Does this account for tax?
No. Tax on gains depends on the fund type, how long you hold and where you live, and it applies to both plans similarly — so it changes both totals without changing much about the comparison between them.
What return should I assume?
Something you would defend if it turned out to be wrong. Long-run equity returns are commonly modelled around 10 to 12% before charges in some markets and well below that in others. The charge difference is the certain part of this calculation; the return is the guess.