Earlier this month, leaders of two prominent online trading and investment platforms, Zerodha and Groww, squared off online over whether direct mutual fund plans—where investors invest directly and do not pay commissions to intermediaries—are the way forward for retail investors.
While Zerodha only enables ‘direct plans’, Groww this month additionally introduced ‘regular plans’ under a new service called MF Prime, which also offers investors personalized mutual fund recommendations based on their risk profile, investment horizon and financial goals.
From the industry's perspective, even as direct investing continues to reduce the role of intermediaries, mutual funds still need traditional advisors and guided platforms. Mint explores why.
Individual vs institutional
As of May 2026, the Indian mutual fund industry was managing assets of about ₹81.6 trillion. About 45% of this was invested directly, according to data from ratings agency Crisil.
Data from capital market regulator Securities and Exchange Board of India (Sebi) shows that for each of the last five years, as much as 78-80% of gross purchases in mutual funds have happened on a direct basis. However, there are layers to this figure, with individual investors showing vastly different behavior than institutional investors.
Institutional investors, who have domain expertise, prefer direct channels to minimize expenses. Banks and financial institutions lead with 94.4% direct investments, followed by corporates at 71.3%.
Despite the proliferation of online platforms, both categories of individual investors—high-net-worth individuals (HNIs) and retail investors—have routed about 70% of their investments via distributors. While high institutional volume lifts the total direct asset share near parity, distributor channels remain valuable for wealth creation by individuals via the mutual fund route.
Power of compounding
Distributor channels remain important partly due to the widespread nature of the industry, offering an abundance of choice in fund houses, asset classes and schemes.
Further, as financialization of Indian households accelerates and systematic investment plans (SIPs) reach record levels, retail and HNI investors are expected to continue to seek relationship management, asset allocation and scheme selection advice, and behavioural handholding.
These services come at a price. When an investor invests via distributors, they pay extra as costs towards distributor commission, which effectively reduces their returns. In large-cap equity funds, for example, the compound average annual drawdown in return in regular plans, as compared to direct plans, is 1.1-1.2 percentage points.
In the long term, this makes a difference. As of 19 July 2026, the compound annual five-year return was 11.24% in direct plans and 10.07% in regular plans. Over 20 years, a sum of ₹1 lakh would have grown to ₹10.35 lakh in a direct plan and ₹7.63 lakh in a regular plan.
Two tracks
The gap in returns is a primary driver behind the rapid growth of direct-plan fintech execution platforms, empowering tech-savvy and self-directed retail investors to eliminate intermediary costs—and boost their returns. However, it also illustrates a crucial tradeoff in the Indian mutual fund ecosystem: while direct plans maximize investor returns, regular plans compensate distributors for going wider and deeper in under-penetrated markets.
Data for the top 10 Indian cities by mutual fund assets shows the difference in profile. Leading corporate and institutional hubs dominate direct inflows. Delhi, Mumbai, Ahmedabad and Bengaluru house corporate treasuries and family offices and have the wherewithal to allocate capital directly to optimize expense ratios—80-90% of gross inflows from these cities in 2024-25 were in direct plans.
Conversely, smaller cities have investor bases that continue to value relationship-driven wealth management, financial advice, and distributor handholding over ‘do-it-yourself’ digital platforms. As mutual fund penetration deepens, distributor networks remain essential to drive retail adoption in markets where guided advice is preferred.
Distributor base
As of May 2026, individual investors accounted for 62% of mutual fund assets, shows Amfi data. They also show an equity bias, accounting for about 91% of assets in equity funds. In debt funds, hybrid schemes and other schemes, individual investors accounted for 21-32% of assets.
We looked at the equity assets from a distribution perspective for ICICI Prudential Mutual Fund (which has an Indian bank as a parent, giving it an extra sales channel) and Nippon India Mutual Fund (which doesn’t). In both instances, investments via direct plans accounted for 25-30% of equity assets, reflecting digital adoption.
Intermediary channels collectively enable over 70% of equity assets for both fund houses. Mutual fund distributors form the largest channel for both fund houses, accounting for 36.7% of equity assets for ICICI and 42% for Nippon. National distributors account for another 15%. This underscores a key structural dynamic: direct is making gains, but independent distributor networks remain the backbone for retail equity penetration.
State of tension
Following the post-pandemic surge in retail investing, commission payouts by fund houses to distributors rose sharply from ₹6,150 crore in FY20 to ₹21,110 crore in FY25, representing a compound annual growth rate of about 28%.
Over the next five years, however, annual commission growth is expected to moderate to about 13.5% as the industry matures.
The draft red herring prospectus of SBI Funds Management, India’s largest fund house that recently went public, emphasized the shift towards direct plans.
“The distribution mix is undergoing a significant shift, away from traditional, bank-only models towards a hybrid model that blends fintech platforms, independent financial advisors (IFAs), and direct AMC channels,” it said, adding that the direct channel, which included digital and direct-to-AMC platforms, was rapidly increasing its share.
Going forward, while there are ample expansionary possibilities for both direct and distributor models, they could also remain in a state of tension, as the divergent positions of Zerodha and Groww show.
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