Regular vs direct mutual funds: How much are you paying your distributor?

Mutual fund investors often focus on returns and expense ratios but may overlook how their choice between a regular and direct plan affects the cost of investing. According to an analysis by 1 Finance Magazine based on commission disclosures published by the Association of Mutual Funds in India (AMFI), mutual fund distributors received an estimated ₹27,335 crore in commissions in FY2024-25, with the money forming part of scheme expenses rather than being charged to investors through a separate bill.

MF distribution commission

Distribution commission is paid from the mutual fund scheme's expense ratio. The expense ratio is deducted from the fund's daily net asset value (NAV), which means investors do not receive a separate invoice for the distribution cost.

The report found that ₹21,106 crore, or 77.2% of the total commission pool, went to 3,158 distributors, representing about 1.5% of an estimated 2.06 lakh distributors on the register. The remaining estimated ₹6,229 crore was shared among around 2.03 lakh distributors below AMFI's disclosure threshold.

This concentration reflects the economics of distribution, where commission revenue increases with the assets gathered by a distributor and the reach of its distribution network.

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Regular vs direct mutual funds

The key difference for investors is whether a distributor is involved in the purchase and whether distribution commission is built into the scheme's expenses.

The report notes that direct plans carry a lower expense ratio and do not pay distribution commission. Regular plans, by contrast, involve distribution through an intermediary, with the associated commission paid from the scheme's expense structure.

For investors, the practical implication is that the cost structure should be considered alongside the returns generated by the fund. A lower expense ratio means less of the scheme's assets are used to meet expenses, although the choice between direct and regular plans also depends on whether an investor requires distribution or advisory support.

Regular vs Direct Mutual Funds: Key Differences

Where does the commission money go?

The distribution commission pool is heavily concentrated among larger channels. Banks and bank-associated brokers received ₹6,330 crore, while wealth managers and corporate mutual fund distributors received ₹11,629 crore. Fintech platforms received ₹458 crore, while disclosed individual distributors received ₹2,689 crore.

Among disclosed entities, the difference is particularly stark. The 50 bank and bank-associated channels averaged ₹126.60 crore each, compared with ₹1.82 crore for the 1,474 disclosed individual distributors.

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What should MF investors check?

Investors can check three things before choosing how to invest. First, they should understand how the person or platform helping them invest is compensated—through commission, fees or both. Second, they can check whether a direct plan of the same mutual fund scheme is available. Third, they should verify whether the intermediary is a mutual fund distributor or a SEBI-registered investment adviser, as the two operate under different regulations and payment structures.

The commission data does not mean that regular plans are necessarily unsuitable. Rather, it highlights the importance of understanding what investors are paying for and how that payment is structured before selecting a mutual fund plan.