A one-percentage-point difference in a mutual fund’s annual expenses looks small. In a worked example with ₹1 lakh invested today and ₹10,000 added every month, it becomes a difference of about ₹8.48 lakh after twenty years. You put in the same money. The underlying investments earn the same assumed return. The recurring cost changes what you keep.
That is an illustration, not a promised return. The useful question is how much an ongoing cost changes your plan. You can run the numbers in our Mutual Fund Fee Impact Calculator.
Two plans, the same portfolio
A direct plan and a regular plan of the same mutual fund scheme share the underlying portfolio and fund manager. The regular route involves a distributor; the direct route does not. Distribution costs make the regular plan more expensive. AMFI explains this distinction and the effect of the lower ongoing expense on investment value.
Direct does not mean zero cost. It means a different cost structure. Compare the same scheme and the same option, such as Growth with Growth. Comparing a low-cost index fund with an unrelated active fund also compares different portfolios, so it cannot isolate the effect of fees.
What one percentage point does
For the worked example, assume the portfolio earns 10% a year before fund expenses. Approximate annual returns after expenses are 9.5% for the plan charging 0.5%, and 8.5% for the plan charging 1.5%. These fees are illustrative; they are not current quotes for a named fund. SEBI’s investor education page uses this same gross-return-minus-expenses approach to explain the cost difference.
| Years | 0.5% expense ratio | 1.5% expense ratio | Final wealth gap |
|---|---|---|---|
| 5 | ₹9.14 lakh | ₹8.89 lakh | ₹0.25 lakh |
| 10 | ₹21.95 lakh | ₹20.75 lakh | ₹1.20 lakh |
| 20 | ₹73.87 lakh | ₹65.39 lakh | ₹8.48 lakh |
| 30 | ₹202.54 lakh | ₹166.34 lakh | ₹36.20 lakh |
After twenty years, your contributions total ₹25 lakh in either plan. The lower-cost scenario finishes at ₹73.87 lakh and the higher-cost scenario at ₹65.39 lakh. The difference is ₹8,47,707 before investor tax.
The gap grows from about ₹25,140 after five years to ₹36.20 lakh after thirty. An expense does more than remove money this year: it leaves less money earning returns in the years that follow. The final wealth gap therefore includes lost growth. It is not a statement that the distributor received ₹8.48 lakh, or that this was the total fee charged.
These figures use steady effective annual growth converted to monthly growth, with every monthly investment made at month-end. Actual returns move around, expense ratios change, and expenses accrue within the fund. The calculation isolates a cost difference; it does not reproduce every detail of an actual fund account.
Do not subtract expenses twice
A published return calculated from a plan’s NAV already reflects its fund expenses. You do not take that return and subtract the expense ratio again. The scheme disclosure’s expense illustration distinguishes returns before expenses from the NAV-based result after expenses.
Our calculator asks for an assumed return before fund expenses. It then applies the two expense ratios. If all you have is a historical net return, do not treat it as a gross forecast. Try several return assumptions instead and see whether the decision depends on an optimistic one.
Check which expense figure you are reading
Use current figures from the fund house or AMFI’s expense disclosures. The 2026 disclosures distinguish base expenses, brokerage, transaction costs and statutory levies. A base expense ratio and a total expense ratio are different measures. Compare like with like, on the same disclosure date. The calculator uses the total expense ratio you enter as a fixed annual assumption.
Lower cost does not replace good decisions
Someone still has to choose a suitable fund, keep the investment running and resist making unnecessary changes. Decide whether you can do that yourself or need help. If you pay separately for advice, add that cost to your own comparison; it is outside this calculator. Ask what service you receive, how the person is paid and what conflicts that creates. A SEBI-registered investment adviser and a mutual fund distributor have different roles and payment arrangements, as explained in this fund house’s direct-versus-regular FAQ.
New money and existing money are separate decisions
Choosing a route for the next SIP does not require an immediate sale of your existing holdings. A switch between plans can have tax consequences. The same fund house FAQ warns about tax on switches and describes its inter-plan exit-load treatment. Check your own scheme’s current terms, any lock-in and your tax position before acting. Our capital gains explainer provides the background; the fee calculator does not calculate a switching decision.
A useful fifteen-minute check
Open your statement and note the scheme, plan and option. Find the current expense disclosure for that exact holding. Compare it with the other plan of the same scheme. Run your contribution amount and time horizon through the calculator, then repeat with a lower return. Finally, decide what help you need and what you are willing to pay for it.
If the exercise reveals a long list of overlapping funds, cleaning up a fund list is a separate task. The cheapest version of an unsuitable portfolio is still unsuitable.
This article is for education, not personal investment or tax advice. All returns and fees in the worked example are assumptions. The model excludes investor tax, switching costs, external platform charges and adviser fees. No fund or provider is recommended. Mutual fund investments can fall in value. For advice about your circumstances, consult a SEBI-registered investment adviser and an appropriate tax professional. Sources checked on 2 October 2026.