Direct vs Regular: What a Trail Commission Actually Buys

The direct-plan movement has been excellent for Indian investors. It has forced a conversation about costs that, until ten years ago, simply did not happen in most client relationships. We are in favour of that conversation. We also think it is incomplete.

The arithmetic, stated simply

Regular plans carry a trail commission paid by the AMC to the distributor. The expense ratio is higher than that of the equivalent direct plan — typically by 50 to 100 basis points for equity funds. Compounded over thirty years, that differential is not small.

So the question is not whether regular plans cost more. They do. The question is whether the service that sits behind the trail is worth what it costs — to you, given what you actually need.

A low expense ratio that lands you in the wrong asset allocation is the most expensive investment you will ever make.

What the trail commission is paying for

In a well-run practice, the trail pays for:

• Plan construction and ongoing review — allocation, selection, rebalancing, and tax-aware withdrawals.
• Behavioural ballast — the phone call that stops you from selling in March 2020, or doubling up in January 2008.
• Operational and tax hygiene — CAS reconciliation, capital-gains tracking, estate and nominee setup, the paperwork everyone hates.
• Coordination with your CA and lawyer so that the plan survives specialists.

If none of those things are happening, the commission is a cost without a service — and a direct plan is the right answer. If all of those things are happening, the commission is a fee for work, and the conversation becomes one of value, not of cost alone.

How to decide, honestly

1. Are you disciplined enough to build, hold, and rebalance an allocation without a distribution partner? If yes, direct plans will serve you well.
2. Do you want a partner to do the work, and to be accountable for it over decades? If yes, you are buying a service — the regular route and the trail that comes with it is what pays for the service.
3. Are you paying for a service that is not being rendered? If yes, that is the real problem to fix — not the plan variant.

Our own position is declared. We deal in regular plans only. That is disclosed in writing at the start of every relationship, and the commissions we earn are disclosed annually. What we ask for, in return, is the chance to demonstrate that the service is worth it.