Zerodha vs Groww debate: Are direct mutual funds always better, or is advice worth paying for?

The ongoing public exchange between Zerodha and Groww over direct and regular mutual funds has sparked a wider debate within India's investment community, with industry experts arguing that the discussion should not be framed as one model versus the other. Instead, they say the real question is whether an investor values lower costs over professional financial advice.

The debate began after Groww introduced regular mutual fund plans through its subscription-based Groww Prime platform. The move drew criticism from Zerodha co-founder and CEO Nithin Kamath, who questioned whether platforms positioning themselves as low-cost brokerages should encourage investors to buy higher-cost regular mutual funds.

Kamath reiterated Zerodha's commitment to direct mutual funds, saying the company would continue offering them free through Coin, its direct mutual fund platform.

"You can't call yourself a discount or a low-cost broker if you charge a percentage fee on transactions, because there's no incremental effort in executing a larger order," Kamath wrote on X.

Groww: Direct plans remain our core offering

Groww has said there had been "confusion and misinformation" about its strategy. The company clarified that direct mutual funds remain the foundation of its platform and would continue to be offered free of charge.

It said the launch of regular mutual funds was intended for investors seeking advisory support, while do-it-yourself (DIY) investors could continue investing through direct plans.

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'The debate is just silly'

Joining the conversation, Hercules Advisors founder Aditya Shah argued that the industry is creating a false choice by pitching direct and regular plans against each other.

"The argument between direct and regular mutual funds is just silly. The market exists for both DIY investors and investors who seek advice," Shah said.

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According to him, direct plans are suitable for investors who understand risk profiling, asset allocation and portfolio construction. However, investors who lack experience or confidence should not hesitate to pay for professional advice through regular plans.

He cited examples from Hercules Advisors' client base, saying the firm has seen senior citizens investing heavily in small-cap funds simply because they appeared to be the best-performing category, without understanding the risks involved.

"India is a large enough market that a place exists for everyone," Shah added.

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Can every platform afford direct plans?

Shah also questioned the economics behind offering commission-free direct mutual fund platforms.

According to him, Zerodha is able to sustain Coin because it generates significant profits from its futures and options (F&O) business.

"Zerodha subsidises the Coin platform with the mammoth profits it makes from F&O. Maintaining a direct platform costs money and most platforms don't have the luxury to have this cross-subsidisation," he said.

He added that offering direct mutual funds also helps Zerodha retain customer assets within its broader ecosystem.

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The real debate: Cost versus advice

At the heart of the discussion is the difference between direct and regular mutual funds.

Both invest in the same schemes managed by the same asset management company (AMC). The only distinction is that regular plans include distributor commissions, resulting in higher expense ratios, while direct plans eliminate those commissions and generally deliver slightly better long-term returns.

Over a long investment horizon, even a 0.5-1 percentage point difference in annual expenses can translate into several lakh rupees because of compounding.

However, experts say lower costs alone should not determine an investor's choice. Regular plans provide access to financial advisers who help investors select suitable funds, build diversified portfolios, rebalance investments and avoid emotional decisions during market volatility.

The Zerodha-Groww exchange has, therefore, broadened the conversation beyond expense ratios. While Kamath continues to champion lower-cost investing, Groww and wealth advisers argue that the value of professional advice cannot be measured solely by commissions. Ultimately, experts say the choice between direct and regular plans depends less on the product and more on the investor's financial knowledge, discipline and need for guidance.