A seemingly small difference in mutual fund expense ratios can become a much bigger difference in wealth when it is allowed to compound for years. The Kotak Small Cap Fund offers a particularly striking example.
Two investors put Rs 10,000 every month into the same Kotak Small Cap Fund. They stayed invested for 13 years. They had exposure to the same portfolio and the same fund management. Yet one investor ended up with Rs 61.09 lakh, while the other had Rs 54.45 lakh. The difference: Rs 6.65 lakh.
The investor with the larger corpus had chosen the direct plan. The other had invested through the regular plan.
The gap is not because the direct plan owns different stocks or follows a different investment strategy. The key difference is cost. Kotak Small Cap Fund’s direct plan currently has a 0.50% base expense ratio, compared with 1.41% for the regular plan — a difference of 0.91 percentage point, among the largest gaps in the established active small-cap fund universe.
And over 13 years, even a seemingly small difference in annual costs can compound into lakhs of rupees.
Rs 10,000 monthly SIP: direct vs regular
| Kotak Small Cap Direct | Kotak Small Cap Regular | |
| Monthly SIP | ₹10,000 | ₹10,000 |
| Investment period | 13 years | 13 years |
| Total amount invested | ₹15.60 lakh | ₹15.60 lakh |
| Annualised SIP return (XIRR) | 19.31% | 17.75% |
| Final corpus | ₹61,09,371 | ₹54,44,525 |
| Corpus advantage of direct plan | ₹6,64,846 | — |
Source: Value Research SIP calculator; Rs 10,000 monthly SIP over 13 years.
The numbers tell an important story. Both investors put in exactly Rs 15.60 lakh over 13 years. The additional Rs 6.65 lakh in the direct plan corpus comes from the difference in the returns earned over the period.
The annualised SIP return itself is 1.56 percentage points higher in the direct plan — 19.31% versus 17.75%.
That 1.56 percentage-point difference may not sound enormous when viewed as a yearly number. But when it compounds over 13 years, the impact becomes substantial.
The real reason: a 0.91 percentage-point expense-ratio gap
Kotak Small Cap Fund currently has one of the widest gaps between its direct and regular plans among older active small-cap funds.
| Plan | Base expense ratio |
| Kotak Small Cap Direct | 0.50% |
| Kotak Small Cap Regular | 1.41% |
| Difference | 0.91 percentage point |
The direct plan was launched on January 1, 2013. Value Research currently lists its expense ratio at 0.50%, AUM at Rs 18,933 crore and risk level as Very High. It is benchmarked against the Nifty Smallcap 250 TRI and is managed by Harish Bihani.
The regular plan is the older version of the scheme, with the scheme inception dating to February 24, 2005. Value Research currently shows a 1.41% base expense ratio, a Very High risk rating and the same portfolio holdings as the direct plan.
This is important because investors are not comparing two fundamentally different funds.
They are comparing two plans of the same fund.
The same fund, the same stocks — but a different final corpus
The direct and regular plans are designed to invest in the same underlying portfolio.
Value Research currently lists the following among Kotak Small Cap Fund’s top holdings:
| Holding | Portfolio weight |
| Aster DM Healthcare | 4.91% |
| Vijaya Diagnostic Centre | 3.87% |
| Sansera Engineering | 3.68% |
| Krishna Institute of Medical Sciences | 3.59% |
| Century Plyboards | 2.46% |
The same top holdings and weights are shown on the Value Research pages for both plans.
So the Rs 6.65 lakh difference cannot be explained by one plan taking more exposure to a particular stock.
The crucial difference is the expense structure.
A regular plan includes distribution/intermediary costs, while a direct plan does not. Because the direct plan has lower expenses, more of the scheme’s returns remain available to the investor.
Over a few months, the difference may be barely noticeable.
Over 13 years, it can become meaningful.
Kotak’s expense-ratio gap is among the highest in small-cap funds
Kotak’s 0.91 percentage-point gap becomes even more interesting when compared with other established small-cap funds.
We looked at active small-cap funds whose direct plans were at least 13 years old. The purpose is to compare funds with a sufficiently long direct-plan history.
| Rank | Small-cap fund | Direct expense ratio | Regular expense ratio | Gap |
| 1 | Kotak Small Cap | 0.50% | 1.41% | 0.91 pp |
| 1 | Sundaram Small Cap | 0.72% | 1.63% | 0.91 pp |
| 3 | ABSL Small Cap | 0.76% | 1.56% | 0.80 pp |
| 3 | ICICI Prudential Small Cap | 0.70% | 1.50% | 0.80 pp |
| 5 | DSP Small Cap | 0.65% | 1.40% | 0.75 pp |
| 6 | Quant Small Cap | 0.62% | 1.32% | 0.70 pp |
| 7 | Franklin India Small Cap | 0.77% | 1.45% | 0.68 pp |
| 7 | SBI Small Cap | 0.60% | 1.28% | 0.68 pp |
| 9 | HDFC Small Cap | 0.61% | 1.28% | 0.67 pp |
| 10 | Nippon India Small Cap | 0.51% | 1.13% | 0.62 pp |
The direct-plan figures and fund ages come from the Value Research fund list. Kotak’s direct plan is listed at 0.50% and 13 years 8 months old.
This puts Kotak right at the top of the ranking, alongside Sundaram, in terms of the direct-versus-regular expense-ratio gap.
The gap is visible in lump-sum returns too
The difference is not limited to the SIP calculation.
Value Research currently shows Kotak Small Cap Direct at 7.15% for one year, 12.48% for three years and 13.65% for five years. The regular plan is at 11.20% for three years and 12.26% for five years.
For the longer-term comparison, the current return data shows:
| Period | Direct plan | Regular plan | Direct advantage |
| 1 year | 7.15% | 5.97% | 1.18 pp |
| 3 years | 12.48% | 11.20% | 1.28 pp |
| 5 years | 13.65% | 12.26% | 1.39 pp |
| 10 years | 17.56% | 16.20% | 1.36 pp |
| 13 years | See note below | See note below | — |
The current 1-, 3-, 5- and 10-year figures are consistent with current market data; Kotak AMC’s own current performance table shows 17.56% for 10 years and 13.66% for five years for the direct plan as of August 31, 2026.
One caution on the 13-year lump-sum number
I would not publish a 13-year lump-sum CAGR in this table until we have the exact Value Research 13-year output. Value Research’s current page exposes the standard 1-, 3-, 5- and 10-year return periods, but its web-readable version does not expose the custom 13-year lump-sum calculation.
For the 13-year SIP, however, you have supplied the exact Value Research calculator figures, so those can be used confidently.
Why Rs 6.65 lakh matters
It is easy to look at the expense-ratio difference and dismiss it. After all, what does an additional 0.91 percentage point really mean? The 13-year SIP calculation provides the answer.
The investor in either plan puts in:
Rs 10,000 × 12 months × 13 years = Rs 15.60 lakh
There is no difference in the amount invested.
But after 13 years:
Direct plan → Rs 61.09 lakh
Regular plan → Rs 54.45 lakh
Difference → Rs 6.65 lakh
That is equivalent to roughly 42.6% of the total amount invested.
This is why expense ratios deserve more attention in long-term mutual fund investing.
The investor isn’t simply paying the additional expense once. The lower return caused by the expense affects the corpus, and the smaller corpus then earns returns in subsequent years.
That is the compounding effect.
But don’t confuse the expense-ratio gap with the return gap
There is an important nuance here.
The current expense-ratio difference is 0.91 percentage point, while the 13-year SIP XIRR difference in your Value Research calculation is 1.56 percentage points.
These two numbers should not be presented as if one mechanically causes the other. Why?
Because the expense ratio has not necessarily remained at exactly 0.50% and 1.41% throughout the entire 13-year period. Expense ratios can change.
Also, SIP returns are calculated from a series of investments made at different dates. Market conditions during those investment periods affect the XIRR.
Therefore, the correct interpretation is:
The lower expense ratio gives the direct plan a structural return advantage. Over a long period, that cost advantage can compound and contribute to a meaningful difference in the final corpus.
It would be too simplistic to say that a 0.91 percentage-point expense gap automatically produces a 0.91 or 1.56 percentage-point return gap every year.
Direct does not mean risk-free
There is another important distinction. The direct plan’s lower expense ratio does not make Kotak Small Cap Fund less risky.
Both plans are classified as Very High risk by Value Research. The fund is a small-cap equity scheme and is required to invest at least 65% of its assets in small-cap stocks. Value Research says small-cap funds are generally appropriate for investors with a 7-year-plus horizon who can withstand sharp interim declines.
So an investor should not conclude that:
Direct plan = safer fund
That is incorrect.
The correct conclusion is:
Direct plan = lower-cost version of the same investment strategy.
The underlying market risk remains.
What investors should take away
The Kotak Small Cap comparison highlights a decision that many mutual fund investors treat as a small administrative choice.
It isn’t necessarily small when the investment horizon is long.
If an investor is comfortable selecting and managing mutual funds independently, the direct plan can provide a cost advantage because there is no distributor commission embedded in the plan’s expense structure.
If an investor uses a distributor or adviser and values the service and assistance provided, the regular plan may still serve a purpose. The higher cost should then be viewed against the value of that service.
But investors should understand what they are paying for.
In Kotak Small Cap’s case, the difference is particularly stark:
0.50% versus 1.41% expense ratio.
19.31% versus 17.75% 13-year SIP return.
Rs 61.09 lakh versus Rs 54.45 lakh corpus.
And ultimately: Rs 6.65 lakh — the amount by which the direct-plan investor’s corpus is higher after investing the same Rs 10,000 a month for 13 years.
That is the power of keeping costs low when the investment horizon is long.
Data note: The Rs 61,09,371 and Rs 54,44,525 corpus figures and 19.31%/17.75% XIRRs above are based on the Value Research 13-year SIP calculations you supplied. The expense-ratio and fund-detail data is from current Value Research pages/listings. Past performance does not guarantee future returns.
Disclaimer: The return and corpus figures mentioned in this story are based on historical data and are not indicative of future returns. The comparison between regular and direct plans is based on the stated investment period, SIP amount and available expense-ratio/return data. Actual investor returns may vary depending on investment dates, market conditions, expenses and other factors. Mutual fund investments are subject to market risks. Investors should consider their investment objectives and risk appetite before investing.
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