For long-term mutual fund investors, the primary threat to wealth creation isn't always market volatility, but the structural drain of expenses. A study by 1 Finance Research has uncovered a startling reality: over a 10-year holding period, more than 80% of mutual fund schemes delivered at least 25% less wealth to investors in Regular plans compared to those in Direct plans. In nearly 20% of the cases studied, the wealth gap exceeded 50%. These differences arise purely from the Total Expense Ratio (TER), where distributor commissions are baked into the cost of Regular plans, eroding returns year after year.

The report emphasizes that while a 1% or 1.5% annual difference in costs may seem negligible in the short term, the power of compounding turns these fees into a massive "wealth tax" over time. Interestingly, the study found a paradox: Regular-plan investors tend to be more disciplined, staying invested longer (21.2% hold for over five years) than Direct-plan investors (7.7%). However, this very discipline ends up benefiting distributors more than the investors themselves, as the higher costs relentlessly eat away at the final corpus. The findings suggest that for savvy investors, the choice of the plan type is just as critical as the choice of the fund itself, as the underperformance is driven by structural costs rather than the fund manager's capability.