If you’re exploring mutual fund investment options, you’ve probably come across the term “direct growth mutual fund.” Understanding this investment choice can make a real difference to your returns over time.
A direct growth mutual fund combines two specific features: the direct plan structure and the growth option. Let’s break down what this means for your money.
Understanding Direct Growth Mutual Fund Plans
When you invest in a direct growth mutual fund, you buy units straight from the Asset Management Company (AMC) without going through any broker or distributor. In contrast to investing via mutual fund distributors, where commissions are built into the expense ratio, direct plans eliminate intermediary costs. The “growth” option means your returns get reinvested automatically instead of being paid out as dividends.
Think of it this way: you’re cutting out the middleman and allowing your money to compound more efficiently over time.
At Snazzy Wealth, we help investors understand the difference between direct plans and distributor-led investments so they can make decisions that truly align with their long-term financial goals.
How Direct Plans Differ From Regular Plans
The main difference lies in who handles your investment and what you pay for it.
Direct Plans:
- You invest directly with the AMC
- Lower expense ratios (typically 0.4% to 0.5% less than regular plans)
- No commission paid to distributors
- You make your own investment decisions
- Higher returns due to lower costs
Regular Plans:
- Investment through distributors, brokers, or financial advisors
- Higher expense ratios due to commission payments
- Professional guidance and support
- Paperwork assistance and ongoing portfolio reviews
- Slightly lower returns due to distribution costs
According to SEBI regulations, both plan types must disclose their expense ratios daily on their websites and the Association of Mutual Funds in India (AMFI) platform.
What Makes the Growth Option Different
Mutual funds offer two main payout options: growth and dividend.
In the growth option, any profits made by the fund get reinvested back into the scheme. You won’t receive regular payouts. Instead, your investment value grows through capital appreciation. The Net Asset Value (NAV) increases as the fund’s portfolio performs well.
In the dividend option, the fund manager distributes profits to investors at intervals they decide. Each dividend payout reduces the NAV by the distribution amount.
For long-term wealth building, the growth option typically works better because of compounding returns.
Direct Growth: The Best of Both Worlds
A direct growth mutual fund plan gives you the lowest costs combined with maximum compounding potential. Here’s why this combination matters:
Lower Costs Mean More Money Working for You
When you choose a direct plan, you save on distribution commissions. For equity mutual funds, this difference can range from 0.4% to 0.5% annually. Over ten or twenty years, this cost difference compounds significantly.
Let’s look at an example. Say you invest ₹10 lakh in a fund that generates 12% annual returns before expenses.
- With a regular plan (2.5% expense ratio): Your investment grows to approximately ₹28.5 lakh in 10 years
- With a direct plan (2.0% expense ratio): Your investment grows to approximately ₹31.2 lakh in 10 years
That’s a difference of ₹2.7 lakh from just a 0.5% lower expense ratio.
Compounding Works Better
Since the growth option reinvests all returns, your money benefits from compounding. Each year’s gains generate their own returns in subsequent years. Combine this with lower expenses from the direct plan, and you get a powerful wealth-building tool.
How NAV Works in Direct Growth Mutual Funds
NAV stands for Net Asset Value. It represents the per-unit price of the mutual fund.
The formula is simple:
NAV = (Total Assets – Total Liabilities) / Total Outstanding Units
SEBI requires all mutual funds to calculate and publish NAV at the end of each trading day. For equity funds, the cut-off time is 3:00 PM, and for liquid and overnight funds, it’s 1:30 PM.
When you invest ₹50,000 in a fund with an NAV of ₹50, you get 1,000 units. If the NAV rises to ₹60 over time, your investment becomes worth ₹60,000.
A common mistake investors make is assuming a lower NAV means a cheaper or better fund. That’s not true. NAV is just the unit price. What matters is the percentage growth over time, not the absolute NAV value.
Benefits of Choosing Direct Growth Mutual Funds
1. Maximum Return Potential
Direct growth plans offer the highest possible returns among all mutual fund variants. You save on distribution costs and benefit from full reinvestment of profits.
2. Better Long-Term Wealth Creation
For goals that are 5, 10, or 20 years away, this combination gives your money the best chance to grow. The compounding effect becomes more pronounced over longer periods.
3. Full Control Over Your Investments
You decide which funds to invest in, when to buy or sell, and how to allocate your money. There’s no need to rely on an advisor’s schedule or recommendations.
4. Transparency
Direct plans let you see exactly where your money goes. All costs are clearly stated, and you can track performance daily through AMC websites or apps.
5. Easy to Manage Online
Most AMCs offer user-friendly websites and mobile apps. You can invest, track, and redeem units from anywhere.
Who Should Invest in Direct Growth Mutual Funds
Direct growth mutual funds work well for:
- Investors comfortable doing their own research
- People with basic knowledge of mutual funds and market risks
- Those who prefer digital platforms for investing
- Long-term investors who don’t need regular income
- Investors looking to minimise costs
Snazzy Wealth provides resources and tools to help investors make informed decisions about direct mutual fund investments. If you’d like personalized guidance or have questions about choosing the right funds, you can easily contact Snazzy Wealth to speak with an expert and get tailored support for your investment goals.
Who Might Prefer Regular Plans Instead
Regular plans with advisory support might suit:
- First-time investors who need guidance
- People who don’t have time to research funds
- Those who want help with goal planning and portfolio reviews
- Investors who prefer personalised advice for complex financial situations
The cost of advisory services should be weighed against the value you receive from professional support.
How to Start Investing in Direct Growth Mutual Funds
Step 1: Complete Your KYC
Before investing in any mutual fund, you need to complete your Know Your Customer (KYC) verification. This is a one-time process. You’ll need your PAN card, Aadhaar card, and a recent photograph.
Step 2: Choose the Right Funds
Research funds based on:
- Past performance (look at 3-year and 5-year returns)
- Expense ratios
- Fund manager’s track record
- Investment strategy and portfolio holdings
- Risk levels that match your comfort
Step 3: Visit the AMC Website or Use MF Utility
You can invest directly through the fund house’s website or use centralised platforms like MF Central. These platforms let you invest in multiple fund houses through a single login.
Step 4: Select Direct Plan and Growth Option
When filling out the investment form, make sure you select:
- Plan type: Direct
- Option: Growth
This is crucial. If you don’t specify “direct,” you might end up in a regular plan by default.
Step 5: Make Your Investment
You can invest through:
- One-time lump sum payments
- Systematic Investment Plans (SIP) for regular monthly investments
- Net banking, UPI, or cheque
Recent SEBI Changes to Expense Ratios
In December 2025, SEBI approved new mutual fund regulations that took effect from 2026. These changes bring more transparency and lower costs for investors.
The regulator renamed Total Expense Ratio (TER) as Base Expense Ratio (BER). Statutory levies like GST, stamp duty, and SEBI fees are now charged separately instead of being included in the expense ratio.
SEBI also reduced expense ratio limits:
- Index funds and ETFs: Reduced from 1.00% to 0.90%
- Equity-oriented Fund of Funds: Reduced from 2.25% to 2.10%
- Close-ended equity schemes: Reduced from 1.25% to 1.00%
These changes mean lower costs for investors, which translates to better net returns over time.
Tax Treatment of Direct Growth Mutual Funds
Understanding tax rules helps you plan redemptions better.
For Equity Mutual Funds:
- Short-term capital gains (holding period less than 1 year): Taxed at 20%
- Long-term capital gains (holding period more than 1 year): Taxed at 12.5% on gains above ₹1.25 lakh per financial year
For Debt Mutual Funds:
- Gains are taxed as per your income tax slab, regardless of holding period
Since growth option funds don’t pay dividends, you only pay tax when you redeem units or switch to another fund.
Common Mistakes to Avoid
1. Choosing Based on NAV Alone
A fund with ₹500 NAV isn’t more expensive than one with ₹50 NAV. What matters is the percentage return and fund performance.
2. Not Checking if You’re in Direct Plan
Always verify you’re investing in the direct plan. Some platforms default to regular plans.
3. Ignoring Expense Ratios
Even a 0.5% difference in expense ratio can impact your wealth significantly over 15-20 years.
4. Switching Too Often
Every switch is treated as redemption and new purchase, which may trigger capital gains tax.
5. Not Reviewing Your Portfolio
Just because you don’t use an advisor doesn’t mean you shouldn’t review your investments annually.
Direct Growth vs Regular Growth: Making the Choice
If you compare direct growth and regular growth plans of the same fund, the direct growth plan will always deliver higher returns. The only difference is the expense ratio.
Some investors wonder if the advisory service in regular plans justifies the extra cost. That depends on:
- How much value you get from professional guidance
- Your confidence in making investment decisions
- Time you can dedicate to research
- Complexity of your financial goals
At Snazzy Wealth, we recognise that every investor’s needs are different. The right choice depends on your comfort level and investment knowledge.
Read More : Direct vs Regular Mutual Fund
Tools and Resources for Direct Investors
AMC Websites
Each fund house maintains detailed information about their schemes, including:
- Daily NAV updates
- Fact sheets with portfolio holdings
- Historical performance data
- Expense ratios for all plans
AMFI Website
The Association of Mutual Funds in India provides consolidated data for all mutual funds. You can compare funds across different AMCs in one place.
Financial Planning Calculators
Use SIP calculators, retirement planning tools, and goal-based calculators to estimate how much you need to invest.
Performance Tracking Apps
Several apps help you track your portfolio performance, send alerts for NAV changes, and provide research reports.
Can You Switch From Regular to Direct?
Yes, you can switch from a regular plan to a direct plan. But there are things to consider:
Tax Implications
The switch is treated as redemption from the regular plan and fresh purchase in the direct plan. If you’ve held units for a sufficient period, you may face capital gains tax.
Process
You need to:
- Redeem your units in the regular plan
- Wait for the redemption amount to credit to your bank account
- Invest in the direct plan of the same or different fund
Some AMCs allow direct conversion without redemption, but this is fund-specific.
When It Makes Sense
Switching makes sense if:
- You’re comfortable managing investments yourself
- You’ve held the regular plan for over a year (to get long-term capital gains treatment)
- The tax impact is acceptable compared to future savings
Risk Factors to Consider
While direct growth mutual funds offer higher returns, they come with the same market risks as any mutual fund:
Market Risk
The value of your investment can go up or down based on stock market movements or interest rate changes.
Concentration Risk
Some funds invest heavily in specific sectors or stocks. Check the portfolio composition before investing.
Manager Risk
Fund performance depends partly on the fund manager’s decisions. A change in management can affect returns.
Liquidity Risk
While most mutual funds offer daily liquidity, selling during market downturns means you might have to book losses.
Read the Scheme Information Document and Key Information Memorandum before investing. These documents explain all risks in detail.
Performance Tracking: What to Monitor
Once you’ve invested in direct growth mutual funds, keep track of:
NAV Movement
Check NAV quarterly or monthly, not daily. Short-term fluctuations are normal.
Returns vs Benchmark
Compare your fund’s performance against its benchmark index. If a large-cap fund consistently underperforms the Nifty 50, it might be time to review.
Expense Ratio Changes
AMCs can change expense ratios within SEBI limits. Monitor this annually.
Portfolio Changes
Review what stocks or bonds the fund holds. Major portfolio changes might signal a strategy shift.
Fund Manager Changes
A new fund manager might bring a different investment style.
Building a Direct Growth Mutual Fund Portfolio
Don’t put all your money in one fund. Spread it across:
Different Asset Classes
- Equity funds for growth
- Debt funds for stability
- Hybrid funds for balance
Different Categories Within Equity
- Large-cap funds for stability
- Mid-cap and small-cap funds for higher growth potential
- Sector funds for specific themes (use cautiously)
Different Investment Horizons
Match funds to your goals:
- Short-term goals (1-3 years): Debt or liquid funds
- Medium-term goals (3-5 years): Balanced or hybrid funds
- Long-term goals (5+ years): Equity funds
Why Snazzy Wealth Can Help
At Snazzy Wealth, we’re AMFI-registered mutual fund distributors with over 25 years of industry experience. While direct plans mean you invest without a distributor, we offer educational resources, calculators, and tools to help you make informed choices.
Whether you choose direct or regular plans, understanding your options is the first step toward meeting your financial goals.
Final Thoughts
Direct growth mutual funds offer Indian investors a way to build wealth with lower costs and full compounding benefits. They work best when you’re willing to do your own research and make informed decisions.
Start by understanding your risk tolerance, investment horizon, and financial goals. Choose funds that match these parameters. Review your portfolio once or twice a year, but avoid making changes based on short-term market movements.
Whether you’re saving for retirement, your child’s education, or any other goal, direct growth mutual funds can be a powerful tool in your investment journey.
Frequently Asked Questions
Q1: What is the main difference between direct growth and regular growth mutual funds?
The main difference is cost. A direct growth mutual fund has a lower expense ratio because no commission is paid to distributors. Regular growth funds involve intermediaries who receive commissions from the AMC, making the expense ratio higher by about 0.4% to 0.5%. Over time, this cost difference leads to higher returns in direct growth plans. Both invest in the same underlying securities and carry the same market risk.
Q2: Can I switch from a regular plan to a direct growth mutual fund plan?
Yes, you can switch, but it’s treated as a redemption and fresh purchase. This means you may have to pay capital gains tax based on your holding period and the type of fund. For equity funds, long-term gains above ₹1.25 lakh are taxed at 12.5%. Evaluate the tax impact before switching. Some investors prefer to let existing regular plan investments continue while directing new investments to direct plans.
Q3: Is a lower NAV better when choosing a direct growth mutual fund?
No, NAV alone doesn’t determine a fund’s quality or potential. Two funds with different NAVs can give identical returns. What matters is the percentage growth over time, the fund’s performance against its benchmark, and consistency of returns. A fund with ₹500 NAV isn’t more expensive than one with ₹50 NAV. Focus on returns, expense ratios, portfolio quality, and fund manager track record instead.
Q4: Do I need a demat account to invest in direct growth mutual funds?
No, a demat account is not required for investing in mutual funds. You can invest directly through the AMC’s website, mobile app, or platforms like MF Central. Units are credited to your folio maintained by the fund house. A demat account is optional and some investors prefer it for consolidated holdings, but it’s not necessary to start investing in direct growth mutual funds.
Q5: How are returns calculated in a direct growth mutual fund?
Returns are based on NAV growth. If you invest ₹1 lakh at NAV of ₹100, you get 1,000 units. If NAV grows to ₹120 in a year, your investment value becomes ₹1.2 lakh, giving you 20% returns. The formula is: Return (%) = [(Current NAV – Purchase NAV) / Purchase NAV] × 100. For SIPs, returns are calculated using XIRR method as you invest at different NAVs over time.