In Regular Plans, the Mutual Fund Company pays your broker a hidden commission every year.
In Direct Plans, instead of being paid to the broker, that money gets added back to your gains every single year. And it adds up to a lot.
Your savings or additional gains are the commissions that your broker/distributor would normally receive. These commissions vary from scheme to scheme, but are generally in the range below. When you buy Direct Plans these commissions come back to you instead of your broker.
COMMISSIONS EARNED BY BANKS/ BROKERS/ DISTRIBUTORS | EQUITY FUNDS | EQUITY TAX SAVING FUNDS | BALANCED & INCOME FUNDS | DEBT FUNDS SHORT TERM | DEBT FUNDS MEDIUM & LONG-TERM | LIQUID FUNDS MONEY MARKET FUNDS |
Year 1 commission | 0.7-1.3% | 1.4-1.6% | 1.3% | 0.3% to 0.5% | 0.3% to 0.8% | 0.05% to 0.15% |
Additional Year 1 commission paid for investors not residing in top-15 cities | 1.0% to 2.0% | 1.5% to 2.0% | 1.5% to 2.0% | - | - | - |
Commission paid Year 2 onwards | 1.2% | 1.3% | 1.2% | 0.4% to 0.5% | 0.5% to 0.8% | 0.05% to 0.15% |