The Great Divide: Direct vs. Regular Plans
At its core, every mutual fund scheme in India comes in two flavours: regular and direct. A regular plan is sold through an intermediary, such as a distributor, bank, or financial advisor. These intermediaries earn a commission for their services, which
is bundled into the fund's annual fee, known as the Total Expense Ratio (TER). A direct plan, on the other hand, is purchased straight from the Asset Management Company (AMC) or through online fintech platforms. Since no agent is involved, there are no commission fees to be paid. This means direct plans have a lower expense ratio. While the difference might seem small—often between 0.5% and 1.5% annually—it has a significant impact on long-term returns due to the power of compounding. A lower TER leads to a higher Net Asset Value (NAV) and, consequently, better wealth creation over time.
Why Gen Z is Going Direct
Several factors are fuelling Gen Z's preference for direct plans. This generation, born between 1997 and 2012, is digitally native, cost-conscious, and comfortable with a do-it-yourself (DIY) ethos. Unlike previous generations that often relied on advisors, many young investors are confident in their ability to research and select funds independently. The post-pandemic market rally and a greater awareness of long-term financial goals have spurred them to start investing early. According to data from CAMS, India's largest registrar and transfer agent, Gen Z investors accounted for 21% of all mutual fund investors in their managed funds, with 32% of new investors in 2025 being from this demographic. This tech-savvy cohort sees the commission paid in regular plans as an unnecessary cost, preferring to maximize their returns by going direct.
The Fintech Enablers of the Shift
The rise of fintech has been a critical catalyst in this trend. Platforms like Zerodha Coin, Groww, Paytm Money, and Kuvera have revolutionised the investment process, making it paperless, seamless, and accessible. These apps allow users to open an account, complete their KYC verification, and start investing in direct mutual funds within minutes, often with SIPs (Systematic Investment Plans) starting as low as ₹500. They provide easy-to-use interfaces, powerful research tools, fund comparisons, and portfolio tracking, empowering investors to make informed decisions without an advisor. By 2024, digital platforms accounted for over 35% of mutual fund sales, a significant jump from 17% in 2020, driven largely by this frictionless, mobile-first experience. This trend isn't limited to metros; a 2025 study found that 81% of young investors on one platform came from beyond India's top 30 cities.
The Bigger Picture: Risks and Rewards
The shift to direct plans offers the clear reward of higher returns. Over an investment horizon of 15-20 years, the savings on commissions can amount to lakhs of rupees. However, the DIY approach is not without its risks. The primary role of a good distributor is to provide guidance, assess risk appetite, and help investors navigate market volatility. Without this advisory layer, investors might find it difficult to choose from the thousands of available schemes or may make impulsive decisions, such as panic-selling during a market downturn. While robo-advisors on fintech platforms are starting to fill this gap with AI-powered recommendations, the discipline and personalised advice offered by a human advisor are still valued by many, especially new or risk-averse investors. Data has shown that investments made through distributors often have a longer holding period, suggesting that advisory guidance can help foster long-term discipline.
