Direct plan adoption in India

The direct plan adoption trajectory in India describes the multi-phase structural shift in Indian mutual fund distribution since the SEBI January 2013 mandate requiring every open-ended scheme to offer a separate direct plan alongside the conventional regular plan. Direct plans, available exclusively to investors who transact without a distributor or broker intermediary, carry a lower Total Expense Ratio (TER) than the corresponding regular plan because no distribution commission is embedded. The structural growth of direct plans, from approximately 21 per cent of industry AUM in March 2016 to over 50 per cent by late 2025 and approximately 57 per cent by April 2026, is among the most consequential changes in the Indian mutual fund distribution landscape in the post-liberalisation era. The adoption has reshaped distribution economics, enabled a viable market for fee-based registered investment advisers (RIAs), and catalysed the rise of zero-commission digital platforms that have collectively acquired tens of millions of retail investors.

The post-2013 trajectory operates across three principal phases. The first phase (2013 to 2017) saw direct plan adoption concentrated among corporate treasuries (whose large-ticket liquid-fund subscriptions made the TER saving materially significant in absolute terms) and a small set of fee-based RIAs and high-net-worth individuals. The second phase (2017 to 2021) coincided with the launch and rapid scaling of zero-commission, direct-plan-only digital platforms (Zerodha Coin , Kuvera , Groww , Paytm Money, ET Money , INDmoney ) which collectively acquired over 5 crore retail users through Aadhaar-based eKYC onboarding and minimum-investment thresholds as low as Rs 100. The third phase (2021 to 2026) saw the maturing of post-2018 SIP cohorts in the direct-plan channel, the formalisation of the regulatory framework through the SEBI Execution-Only Platform (EOP) Regulations, 2023 , and the eventual crossing of the 50-per-cent-of-industry-AUM milestone.

The direct plan adoption story interacts with several adjacent structural shifts: the passive investing wave in India (index funds and ETFs, which are disproportionately held in direct plans), the SIP growth story in India (with direct-plan SIPs accounting for an increasing share of incremental flows), and the broader active versus passive equity equation in India . The trajectory has been a deliberate regulatory project: SEBI introduced the direct plan framework in 2013, the investor charter for mutual funds in 2021, and the EOP framework in 2023, each step removing structural barriers to direct-plan retail adoption.

Background

The pre-2009 entry-load era

Before 2009, Indian mutual funds charged an entry load of up to 2.25 per cent of the invested amount on equity schemes. The load was passed to the distributor as an upfront commission. The entry-load model incentivised distributors to recommend frequent scheme switches (churning) because each new investment generated a fresh entry load. The model was structurally adverse to investor interests because:

• Investors who invested without a distributor (directly through the AMC) paid the same entry load, which was credited to the AMC rather than to any adviser.
• The upfront commission produced acquisition-focused rather than retention-focused distributor behaviour.
• The 2.25 per cent immediate cost dragged on near-term investor returns.

Entry-load abolition, August 2009

SEBI abolished entry loads effective 1 August 2009 through a circular that prohibited the deduction of entry load from the subscription amount. Upfront commissions were no longer automatically embedded. AMCs could pay distributors from the scheme’s ongoing expense ratio (trail commission) but could not deduct additional amounts at entry. The change reduced the commission available to distributors significantly and triggered a period of net outflows from equity schemes as distributor motivation declined.

The 2009 abolition created a logical anomaly that the eventual 2013 direct-plan framework addressed: investors who invested without a distributor paid the same TER as those who invested through a distributor, even though no distribution service was being rendered to the direct-route investor. The TER continued to include trail commission allocations that benefited only the distribution channel.

2012 framework design

SEBI’s 2012 consultation on the direct-plan framework addressed the post-entry-load anomaly. The framework’s principal design choices were:

• Separate plan, not separate scheme: The direct plan would be a separate plan within the same scheme, sharing the underlying portfolio but maintaining a distinct NAV.
• TER differential anchored to commission: The direct plan TER would be lower than the regular plan TER by at least the amount of distribution commission, preventing AMCs from absorbing the savings.
• No transaction restrictions: Direct plans would be fully transactable, with the same minimum-investment thresholds and operational mechanics.
• Tax neutrality: Direct and regular plans would be treated identically for tax purposes; the higher cost basis in the direct plan would simply produce a higher reported gain on redemption.

SEBI 2013 mandate

Circular and effective date

SEBI issued a circular on 13 September 2012 requiring all AMCs to introduce a separate direct plan within every existing and future scheme, effective 1 January 2013. The circular’s key provisions:

• The direct plan would have a distinct net asset value from the regular plan.
• The direct plan TER would be lower than the regular plan TER by the exact amount of the distribution commission embedded in the regular plan.
• Investors transacting directly through the AMC’s own website, the AMC branch, or through SEBI-registered investment advisers (RIAs) qualified for the direct plan.
• Investments through brokers, distributors, banks, national distributors, or any entity holding an AMFI ARN were required to use the regular plan.

Anti-arbitrage rule

A critical structural rule prevents AMCs from narrowing the direct-vs-regular TER differential through cross-subsidisation: the direct plan TER must be lower than the regular plan TER by at least the distribution commission paid in the regular plan. This makes the TER differential structural rather than discretionary; AMCs cannot decide to absorb some of the commission cost in the direct plan to reduce the differential.

TER differential

The TER differential between direct and regular plans varies by scheme category, reflecting the differential distribution commission across categories:

Compounding economic impact

The compounding impact over long holding periods is substantial. For an investor holding a Rs 10 lakh equity corpus for 20 years at 12 per cent gross return:

The Rs 10.3 lakh difference, representing approximately 13 per cent of the regular-plan terminal corpus, accrues purely from the compounding effect of the TER differential. For longer holding periods and larger principals, the absolute and proportional gap is correspondingly larger. The compounding economics are the principal driver of post-2017 retail direct-plan adoption.

Adoption trajectory

Phase 1: slow start, 2013 to 2017

Initial direct plan adoption was concentrated among three investor types:

• Corporate treasuries: Liquid and short-duration debt fund subscriptions by large corporates and PSUs. Treasury ticket sizes range from Rs 10 crore to Rs 10,000 crore per transaction, making the TER saving materially significant in absolute terms even for the modest direct-vs-regular differential (10 to 15 basis points) in liquid funds.
• High-net-worth individuals: Sophisticated retail investors transacting through AMC websites or the early online platforms (the original web portals of CAMS and KFin Technologies precursors).
• SEBI-registered investment advisers (RIAs): A fledgling category whose fee-based model was structurally compatible with direct plans (RIAs are prohibited from receiving commissions from AMCs under the SEBI (Investment Advisers) Regulations, 2013 ).

Retail-investor adoption was limited. Most individual investors continued to transact through banks, IFAs, and national distributors (NJ Wealth, Prudent Corporate, Bajaj Capital, Anand Rathi) who operated exclusively on the regular plan.

By March 2016, direct plan AUM was estimated at approximately Rs 3 to 4 lakh crore out of a total industry AUM of approximately Rs 14 lakh crore, an approximately 21 per cent direct-plan share. Corporate treasury mandates comprised the dominant share by AUM; the retail base was smaller.

Phase 2: digital platform acceleration, 2017 to 2021

The launch and rapid scaling of zero-commission, direct-plan-only platforms radically changed the retail landscape:

• Zerodha Coin : Launched 2017, integrated with the Zerodha equity brokerage. Enabled existing Zerodha traders to add direct-plan mutual fund holdings within the same platform interface.
• Kuvera : Launched 2017, the first dedicated direct-plan SIP platform with goal-based investing features. Acquired by Smallcase in 2023.
• Groww : Founded 2016, launched mutual fund distribution in late 2016 and integrated stockbroking in 2020. Became the largest broker by NSE active client count in 2023.
• Paytm Money: Launched 2018, leveraged Paytm’s large user base for distribution.
• ET Money : Times Internet-owned platform, MF feature launched 2017, ET Money Genius paid-tier subscription introduced 2021.
• INDmoney : Financial wellness platform incorporating direct-plan investing.

These platforms collectively acquired over 5 crore users by 2022, the vast majority investing in direct plans through SIPs. The platforms’ principal innovations:

• Aadhaar-based eKYC: Reduced onboarding time from days to minutes.
• Mobile-first design: Made mutual fund subscription accessible to first-time investors.
• Low minimum investment: Rs 100 to Rs 500 minimum SIPs.
• Goal-based interfaces: Made portfolio construction approachable for novice investors.

By March 2020, direct plan share of industry AUM had grown to approximately 40 per cent, with the retail component substantially expanded relative to the 2016 base.

Phase 3: 50-per-cent milestone, 2021 to 2026

Through 2021 to 2025, direct plan AUM continued to compound, driven by:

• Continued growth in corporate treasury direct plan holdings: Treasury mandates remained the largest absolute-AUM component of direct plans.
• Maturing AUM from post-2018 direct-plan SIPs: SIP cohorts that had started in 2018 to 2020 had compounded over five-plus years by 2025.
• RIA-advised assets: SEBI estimated RIA-advised assets at approximately Rs 5 to 7 lakh crore by 2024.
• Continued digital platform retail acquisition: The post-2020 retail-participation surge produced sustained new-investor inflows to direct plans.

By FY 2022-23, direct plan AUM crossed the 50 per cent threshold of total industry AUM for the first time. As of March 2025, direct plan AUM was approximately Rs 38 to 40 lakh crore out of a total industry AUM of Rs 67 lakh crore, an approximately 57 to 60 per cent direct plan share. By April 2026, the direct plan share crossed 60 per cent of the equity-MF AUM.

Investor base composition

Corporate treasuries

Corporate treasury mandates constitute the largest single component of direct plan AUM by absolute value, but a small fraction of total account count. Large corporates and PSUs invest in liquid, overnight, ultra-short, and short-duration debt funds via direct plans. Investment ticket sizes range from Rs 10 crore to Rs 10,000 crore per transaction. The TER saving is meaningful even for a 0.10 to 0.15 per cent differential because of the large absolute amounts.

SEBI-registered investment advisers

The Registered Investment Adviser (RIA) category under the SEBI (Investment Advisers) Regulations, 2013, prohibits commission income from AMCs and requires fee-based client billing. RIA client transactions are routed through the direct plan. The RIA ecosystem grew from approximately 1,000 registered entities in 2015 to over 1,400 by 2025. The fee-only advisory model has been a deliberate SEBI policy promotion through the post-2018 charter framework and the 2023 EOP framework.

Digital platform retail investors

Online direct platforms (Groww , Kuvera , ET Money , INDmoney , Zerodha Coin , Paytm Money) serve the long tail of small-ticket SIP investors. Characteristics of this segment:

• Average SIP ticket: Rs 1,500 to Rs 2,800 per month.
• Age distribution: Predominantly 22 to 35 years old, first-generation mutual fund investors.
• Category concentration: Equity (primarily large-cap, flexi-cap, mid-cap) and aggressive hybrid; growing index-fund allocation.
• Geographic distribution: Increasingly from tier-2 and tier-3 cities, mirroring the B30 cities growth pattern.

Self-directed sophisticated investors

A growing segment of self-directed sophisticated retail investors transacts directly through AMC portals, the MFU (the AMC-consortium utility), or MF Central (the joint CAMS-KFin portal). These investors typically have larger ticket sizes (Rs 50,000 to Rs 5 lakh per transaction) and use the direct plan for cost-optimisation without relying on commercial-aggregator platforms.

Regulatory evolution

SEBI has progressively refined the direct plan framework between 2013 and 2026:

2018: TER slab restructuring

The October 2018 TER circular introduced more granular TER slabs by AUM size, compressing TERs for large schemes. This reduced the absolute regular-vs-direct differential while maintaining the proportional differential. The slab restructuring had a larger impact on regular plans (which had higher absolute TERs) than on direct plans.

2020: Plan-labelling clarity

SEBI directed AMCs to clearly label all investor communications and account statements with whether the holding was in the direct or regular plan. The labelling requirement was intended to address investor confusion and to ensure that investors were aware of which plan they held.

2021: Investor Charter mandate

The SEBI Investor Charter for Mutual Funds of August 2021 mandated AMCs to disclose the direct plan as a primary investor right, requiring prominent display on AMC websites and in subscription flows. The Charter framework reinforced the direct plan as the default rather than the regular plan as the default.

2023: EOP Regulations

The SEBI Execution-Only Platform Regulations of 2023 , notified through SEBI Circular SEBI/HO/IMD/IMD-POD-1/P/CIR/2023/74 dated July 2023, formalised the regulatory status of online direct-plan platforms. The framework requires execution-only platforms to register with AMFI as EOP Category 1 or with SEBI as EOP Category 2 (stockbroker-route), subject to defined cybersecurity, investor protection, and operational standards. The formalisation reduced regulatory uncertainty for the platforms and enabled further investor onboarding.

2024: Master Circular consolidation

The May 2024 SEBI Master Circular on Mutual Funds consolidated all direct-plan-related provisions into the single operating document. The consolidation also harmonised TER disclosure norms across AMCs.

Impact on the distribution ecosystem

The direct plan structure has created a structural two-tier distribution ecosystem:

Tier 1: Fee-based advisory model

Fee-based RIAs and advisory platforms that earn no commissions from AMCs and are aligned to client outcomes. Their client assets are in the direct plan. The fee structure is typically:

• Flat-fee or percentage-of-AUA (assets under advice) charged to the client.
• Annual fees in the range of 0.5 to 1.5 per cent of AUA for full-service advice.
• Subscription-fee models (such as ET Money Genius ) for digital-first advisory.

Tier 2: Transactional and commission model

Banks, IFAs, national distributors, and online regular-plan platforms that earn trail commissions (typically 0.50 to 1.00 per cent annually on equity AUM) from AMCs. Their client assets are in the regular plan. This channel serves:

• Investors who value relationship-based service.
• Investors with limited financial literacy who benefit from distributor handholding.
• Investors in tier-2 and tier-3 cities where digital adoption is lower.
• Corporate sales channels (HR-led salary-linked SIPs).

Competitive tension

The competitive tension between the two tiers has intensified through 2023 to 2026. Bank-led distribution and IFA networks have defended their position by emphasising:

• Behavioural coaching during market volatility.
• Relationship management across the investor’s life-stage transitions.
• Cross-product service (insurance, fixed deposits, loans).
• Local-language and cultural alignment in tier-2 and tier-3 markets.

The 2024 to 2026 industry evolution suggests that the two tiers will continue to coexist, with each capturing different investor segments based on financial literacy, geographic location, ticket size, and behavioural preference.

Adoption metrics

AUM share trajectory

Equity-MF specific

Within equity mutual funds, direct plan adoption has been more rapid than in debt:

• Equity-MF direct plan AUM share: approximately 50 per cent in 2025; 60 per cent in 2026.
• Debt-MF direct plan AUM share: approximately 65 per cent (corporate-treasury-dominated).
• Hybrid and index-fund direct plan share: 60 to 70 per cent in 2026.

SIP-specific

Direct plan SIP share has lagged direct plan AUM share because new SIP registrations through commercial regular-plan distributor networks continue to outpace direct-plan acquisitions in absolute count terms. As of January 2026:

• Direct plan SIPs: approximately 35 per cent of monthly SIP inflow by value.
• Direct plan SIPs: approximately 50 per cent by SIP-account count (because direct plan SIPs have lower average ticket sizes).

The ticket-size difference reflects the demographic difference: direct-plan SIPs are predominantly first-time and younger investors with smaller initial allocations; regular-plan SIPs include more established investors with larger ticket sizes.

Criticism and limitations

No advice included

Investors who invest in direct plans without professional guidance risk:

• Inappropriate scheme selection: Choosing a scheme based on past returns without understanding the underlying risk profile.
• Incorrect asset allocation: Over-concentration in equity for short-horizon goals or in debt for long-horizon goals.
• Panic-driven redemptions: Cashing out during market drawdowns without professional coaching.

The behavioural-finance dimension of investing is genuinely valuable, and the direct plan framework provides no automatic substitute for professional guidance.

Complexity for unsophisticated investors

Comparing schemes across 44 AMCs and 36 SEBI categories requires financial literacy and time. Direct plan adoption is, in this respect, structurally biased toward investors with the literacy and bandwidth to make informed scheme selections. First-time retail investors may benefit from the curated scheme universe that distributors and RIAs provide.

Platform dependency

Investors relying on fintech platforms for direct plan access face platform-specific risks:

• Regulatory compliance: Risk of platform-level regulatory action.
• Technology reliability: System downtime during market events.
• Platform shutdowns: Risk of platform-level business failure.

The MF Central and MFU cross-platform infrastructure partly mitigates these risks by providing AMC-direct access independent of any commercial platform, but is not as widely used by retail investors as the commercial platforms.

Tax-loss complexity

Investors maintaining holdings across both direct and regular plans face complexity in capital gains computation, particularly under Section 112A FIFO mechanics. The capital gains statements from CAMS , KFin Technologies , and broker platforms have substantially improved, but plan-switching transactions can produce confusing tax-reporting outcomes.

Comparison with international markets

The Indian direct plan trajectory is broadly comparable to similar developments in other markets:

• United States: The “no-load” mutual fund segment grew from approximately 5 per cent of MF AUM in 1980 to over 70 per cent by 2020, driven by similar fee-transparency dynamics. The 401(k) institutional channel accelerated the shift.
• United Kingdom: The Retail Distribution Review (RDR) of 2012 effectively eliminated commission-based mutual fund distribution, producing a similar structural shift toward fee-based advice.
• Australia: The Future of Financial Advice (FOFA) reform of 2013 banned commission payments on mutual fund products to advisers, producing a structural shift.

The Indian direct plan framework is distinctive in retaining the commission-paying regular plan alongside the no-commission direct plan, rather than banning commissions outright. The dual-plan structure has allowed a gradual transition over more than a decade rather than an abrupt regulatory reset.

Recent developments

50 per cent milestone

The crossing of the 50 per cent direct plan AUM threshold in FY 2022-23 was a structural milestone. The milestone produced sustained media coverage and reinforced the structural shift.

EOP framework operational maturity

The post-2023 EOP framework has matured operationally, with Groww , Kuvera , ET Money , INDmoney , Zerodha Coin , and Paytm Money all registered or applying under the framework. The formal registration has reduced regulatory uncertainty.

Passive-investing intersection

The intersection of direct plan adoption with the passive investing wave in India has been an important post-2023 dynamic. Index funds and ETFs are disproportionately held in direct plans (because the TER differential is smaller in absolute terms but the underlying TER is so low that any commission embedment is conspicuous). The passive-shift growth has reinforced direct plan adoption.

Post-July-2024 capital gains regime

The Finance (No. 2) Act, 2024 capital gains tax reform has marginally affected direct-vs-regular plan switching decisions. Investors considering switching from regular to direct plans must account for the LTCG impact of the redemption-and-resubscription cycle, with the 12.5 per cent rate above Rs 1.25 lakh annual exemption applying to the gain on the regular-plan redemption leg.

Real-time NAV consultation

SEBI’s October 2024 consultation on real-time NAV publication, if adopted, would apply equally to direct and regular plans without changing the structural dynamics of direct plan adoption.

Investor-charter integration

The SEBI Investor Charter for Mutual Funds continues to emphasise the direct plan availability as a primary investor right. The 2024 to 2026 enforcement focus has reinforced AMC obligations to disclose the direct plan option prominently in subscription flows.

See also

• Mutual fund
• Mutual fund industry in India
• Regular plan versus direct plan
• Total Expense Ratio (TER)
• Mutual fund distribution in India
• SEBI Investment Management Department
• SEBI EOP Regulations 2023
• SEBI Investor Charter for Mutual Funds
• AMFI
• AMFI ARN
• SIP in India
• SIP growth story in India
• Mutual Funds Sahi Hai
• Passive investing wave in India
• Active versus passive equity in India
• Mutual fund AUM growth in India
• Robo-advisory in Indian mutual funds
• Groww
• Kuvera
• ET Money
• INDmoney
• Zerodha Coin
• Smallcase
• MF Central
• MFU (Mutual Fund Utility)
• CAMS
• KFin Technologies
• Section 112A
• Capital gains tax in India
• Flexi Cap mutual fund in India
• Aggressive Hybrid mutual fund
• Multi-cap versus Flexi-cap
• ELSS mutual fund in India
• T30 and B30 cities

References

1. SEBI Circular CIR/IMD/DF/24/2012 dated 13 September 2012, Steps to Re-energise Mutual Fund Industry (Introduction of Direct Plan).
2. SEBI Circular dated 30 June 2009, Abolition of Entry Load on Mutual Fund Schemes.
3. SEBI Circular SEBI/HO/IMD/DF2/CIR/P/2018/137 dated 22 October 2018, Total Expense Ratio of Mutual Fund Schemes.
4. SEBI Circular SEBI/HO/IMD/IMD-POD-1/P/CIR/2023/74 dated July 2023, Execution-Only Platform Framework.
5. SEBI Master Circular on Mutual Funds, SEBI/HO/IMD/IMD-PoD-1/P/CIR/2024/137, 27 May 2024.
6. SEBI Investor Charter for Mutual Funds, August 2021.
7. SEBI (Investment Advisers) Regulations, 2013, as amended.
8. AMFI Industry Data, monthly AUM and SIP disclosures, Association of Mutual Funds in India.
9. AMFI Direct Plan AUM Share Trajectory, internal data.
10. Finance (No. 2) Act, 2024, Sections 51 to 56 (capital gains tax regime).