Summary of this article
Groww’s new Prime feature reignites the regular funds debate.
Zerodha’s Nithin Kamath highlights hidden commissions in regular plans.
Direct mutual funds offer lower expenses for DIY investors.
Recent posts by Zerodha co-founder Nithin Kamath and investment platform Groww have reignited a longstanding debate in the realm of mutual fund investment, regarding which is better for retail investors: regular mutual fund plans or direct mutual fund plans.
In a recent post on the social media platform X, Kamath highlighted that despite rising investor participation, a lot of investors do not know the difference between direct and regular mutual fund plans.
"A lot of investors still don't know the difference between direct and regular plans. If you are investing in mutual funds, it's worth checking if your investments are in regular or direct plans," Kamath wrote.
Kamath added that because of this knowledge gap, millions of investors might be unknowingly paying hidden commissions that erode their mutual fund returns over the long term. Notably, the post followed Groww’s announcement regarding the launch of Groww Prime on July 3, which enables investors to opt for the regular fund route on the app.
What Groww Said In Its Post
In a social media post, Groww announced that it has built an in-house research desk of market experts, supported by an AI engine that continuously evaluates fund performance, risk, and suitability to help investors invest in choosing the right mutual funds for them.
However, Groww clarified that while Groww Prime is optional, if an investor chooses to invest via Groww Prime his or her mutual fund investments will be made through the regular plan route. Adding that investors will still remain free to switch back to the direct mutual funds.
In a separate post made on July 9, the platform clarified that there has been some misinformation regarding Groww Prime. The platform added that direct mutual fund investing remains the core of the company’s business, with over 1 crore investors.
“Direct mutual funds are, and will remain, the heart of Groww. Over 1 crore investors have built more than Rs 1.9 lakh crore of mutual fund investments on our platform, making Groww the largest mutual fund platform in the country. For every DIY investor, Groww stays exactly what it has always been: direct, zero-commission, and free. Forever. We will keep shipping new features for direct MF investors,” Groww wrote.
The platform reiterated that Groww Prime is an optional product for investors who are looking for investment-related guidance.
“MF Prime is not a shift. It is an addition - a fully opt-in product for a different cohort: investors who want research-backed guidance on what to buy, hold, exit, and rebalance. Many of these are people who wanted to invest through Groww but held back because they needed help. Prime finally brings them in,” Groww said.
What Kamath Said In His Post
Taking to social media, Kamath wrote about a milestone the company has achieved as it has become the largest direct mutual funds platform in India.
"Anyway, Coin by Zerodha today is the largest direct mutual funds platform in India, with nearly Rs 1.6 lakh crores in direct MF AUM, and all our customers have saved thousands of crores in commissions. Direct mutual funds are a no-brainer if you're a DIY investor," Kamath wrote.
Kamath also highlighted the broader shifts he has seen happening within the discount broking and mutual fund landscape and their potential impact on investors.
Kamath wrote that around 2015 to 2017, several fintech startups launched platforms offering direct mutual funds for free to acquire users rapidly. However, amid mounting revenue pressures, many of these platforms pivoted to offering commission-bearing regular mutual funds. Kamath emphasised that Zerodha continues to offer only direct mutual fund plans and does not charge a percentage-based commission for execution.
Direct vs Regular Plan Debate
Mutual fund investors are impacted by the industry shift to regular plans, as every fund house charges an annual fee called the expense ratio to manage the investor’s money. However, in a direct plan, you buy the fund straight from the asset management company. Since there is no middleman involved, the expense ratio is relatively lower.
On the other hand, in a regular plan, the investor buys the fund through a distributor or a wealth app. The asset management company pays a recurring commission to this distributor for bringing in your business. This commission is taken directly from your investment by charging a higher expense ratio.
However, despite the lower costs offered by direct plans, regular plans are suitable for investors who lack financial knowledge and need a distributor to guide them through the investment process. On the other hand, once an investor begins to understand the basics of mutual fund investment, they can consider switching to direct plans.
Thus, Kamath urged investors to check their portfolios and see whether they are investing via regular or direct plans. He added that while the difference in the expense ratio is typically between 0.5 per cent and 1.0 per cent, it erodes wealth over time due to the math of compounding.
Kamath explained this by giving an example of an investor who invests Rs 5000 per month in the DSP Large Cap Mutual Fund from 2012 to 2026. Kamath showed that for the exact same plan, the investor’s corpus would have grown to Rs 19.5 lakh in the direct plan and Rs 18.3 lakh in the regular plan. The difference here arises due to the Rs 1.2 lakh commission the investor would have had to pay over the years.
Thus, the larger your portfolio grows, the more money you end up paying out in commissions. Therefore, as an investor becomes more comfortable with the markets, it makes sense to eventually migrate holdings to direct mutual funds to save on costs.
