Despite the rise of low-cost direct mutual fund plans, nearly 70% of individual investors still prefer distributors. While direct plans offer higher returns by avoiding commissions, most retail investors rely on distributors for professional financial advice and behavioral support.
Detailed Coverage
The Indian mutual fund sector has reached an asset base of approximately ₹81.6 trillion as of May 2026. While digital platforms and direct-to-investor plans have gained popularity, data shows a clear divide in how different types of investors manage their money. Institutional players, such as banks and corporations, prefer direct plans to keep costs low, with these groups directing over 70% to 94% of their investments through these channels. However, the picture for individual and high-net-worth investors is markedly different, with the vast majority continuing to use distributors.
The Impact of Commission Costs on Long-Term Wealth
Investors choosing between direct and regular plans often face a trade-off between lower costs and professional service. Direct plans, which do not charge distribution commissions, typically offer higher net returns. For instance, in large-cap equity funds, the regular plan often trails the direct plan by 1.1% to 1.2% in annual returns. Over a 20-year period, this difference adds up significantly. As of July 19, 2026, a hypothetical ₹1 lakh investment would have grown to approximately ₹10.35 lakh in a direct plan, compared to ₹7.63 lakh in a regular plan, illustrating the long-term impact of expense ratios on compounding.
Why Retail Investors Stick With Distributors
Despite the clear mathematical advantage of direct plans, roughly 70% of individual capital still flows through distributors. This preference is driven by the need for personalized financial guidance. With a vast number of mutual fund houses and scheme options available today, many retail investors find it challenging to select and maintain a portfolio on their own. Distributors provide essential services, including asset allocation strategy, portfolio rebalancing, and behavioral coaching, especially during volatile market periods. This human element of wealth management remains a primary driver for investment adoption in smaller cities where digital-only platforms have yet to become the primary choice.
Geographic Trends in Investment Channels
Market data highlights a distinct geographical divide in how mutual funds are accessed. Cities with mature financial infrastructure, such as Mumbai, Delhi, Bengaluru, and Ahmedabad, see a high concentration of direct inflows, ranging from 80% to 90%. These regions host a high density of corporate and institutional offices that prioritize cost efficiency. In contrast, investors in smaller towns and cities continue to rely heavily on the personalized relationship management model provided by intermediaries. As the financialization of savings continues to penetrate deeper into India, the coexistence of these two models—low-cost digital self-service and advice-led distribution—is likely to shape the industry's growth in the coming years.