80% MF Schemes Drain 25% Wealth via Fees in 10 Years: Study

A new study from 1 Finance Research reveals how hidden distributor commissions in regular mutual funds can cut out up to 25% of your potential wealth when stacked against direct plans. Investors sticking with regular plans often end up with far less after a decade, purely because of these sneaky fees.

Over the past 10 years, more than 80% of schemes in equity mutual funds have shown that regular-plan investors hold at least 25% less value in their investments compared to direct plans from the same funds. Shockingly, about one in five schemes creates a wealth gap of over 50%, all thanks to the compounding effect of higher expenses.

What Makes Mutual Fund Commissions So Damaging?

They are tucked into the TER (Total Expense Ratio) of regular plans, slicing away at returns year after year, even though both regular & direct plans buy the exact same stocks. Direct plans skip those distributor payouts, letting your money grow cleaner. But even if you hold regular plans longer, it rarely makes up for the ongoing fee hit.

The wealth erosion from regular vs direct plans is not steady, it speeds up over time. What starts as a slight dip after five years balloons into major losses by ten years. For instance, over five years, 53% of schemes leave regular-plan investors down 15% or more versus direct options, as per the report.

Must Read: Expense Ratio in Mutual Funds 2026: How It Eats Your Profits

This issue is not about choosing poor funds; it focuses on the cost differences in regular mutual fund plans. As of March 2024, data from AMFI, regular plans still rule the roost in assets under management. Yet, 21.2% of regular investments hang around for over 5 years, compared to just 7.7% for direct plans. Keeping investments for the long term can increase the overall growth, but high fees or commissions from mutual funds reduce those benefits.

Addressing this, the Senior Vice President at Mutual Fund at 1 Finance, Rajani Tandale, explains, "Those small annual cost differences may seem harmless at first, but they can add up over time during both good and bad market conditions, drastically changing what you end up with.” He also said, “Our data proves the underperformance in regular plans is baked in, not just a one-off”.

Tandale points out investor habits, too, by saying, “While regular plans do see longer holds, 21.2% over five years versus 7.7% for directs, the embedded commissions still dilute those gains big time”.

What does the Study Highlight?

Mutual fund commissions in regular plans can reduce your wealth over time. While they may encourage you to invest for a longer period, high expense ratios can greatly reduce your returns. This study shows that choosing direct funds instead of regular funds is just as important as picking the right fund. Those "small" fees add up and can create large differences over time.

The analysis looked at AMFI NAV data for Direct-Growth and Regular-Growth equity funds in essential categories. They focused on funds with a track record of at least five years for short-term views and over ten years for long-term investments. To spotlight pure MF fees' impact on wealth, they simulated a flat Rs 100 investment from the exact launch date in both plan types.

Related Blogs:

1. Equity vs Debt vs Hybrid Mutual Funds: What Should You Pick?
2. Smart SIP Strategy to Build a ₹2 Crore Wealth in 2026