While direct plans have gained significant traction among institutional investors, retail investors continue to show preference for regular plans. According to the SBI Funds Management IPO RHP, direct plans accounted for 49.1% of the mutual fund industry's assets under management (AUM) as of March 2026, up from 45.4% in March 2021. However, the corresponding share for individual investors is just 30%, creating a stark contrast with institutional adoption rates.
Financial experts attribute the preference gap to multiple factors beyond cost considerations. Adil Chacko, Executive Director at Anand Rathi Wealth, explained that many individual investors are first-generation mutual fund investors who entered the market through bank relationship managers or mutual fund distributors. He noted that shifting to direct plans requires investors to independently select funds and manage portfolios, which many are not prepared to handle independently.
Investment holding patterns reveal significant differences between plan types. As reported by Mint, 33% of SIP assets in regular plans had remained invested for more than five years, compared with only 19% in direct plans. Nilesh D Naik, Head of PhonePe Mutual Funds, believes the debate has become overly focused on expense ratios, arguing that many investors still rely on mutual fund distributors for advice and assistance. He pointed to industry trends including short holding periods in equity funds and a SIP stoppage ratio of around 100%.
Industry experts identify specific categories of investors who should consider direct plans. Nitin Agrawal, CEO of Mutual Fund by InCred Money, said direct plans are appropriate for investors who understand asset allocation, can evaluate funds across categories, and do not require external guidance to stay invested during volatile markets. Nilesh Naik noted that direct plans are suitable for those availing RIA advisory services and highly evolved investors with time, resources, and expertise to manage their own investments.
Financial experts emphasize that investment plan selection should extend beyond expense ratios. Adil Chacko from Anand Rathi Wealth advised investors to consider three key questions: whether they have the knowledge and time to manage their own portfolio, access to quality advice, and the ability to handle behavioral biases during market downturns. Nitin Agrawal from InCred Money noted that the distribution network has been crucial for the industry's multi-fold growth since inception, with distributors transforming from transaction facilitators to entry points into asset classes through constant education and reach.
