India’s market regulator, the Securities and Exchange Board of India (SEBI), will make direct mutual fund plans the default option on asset management companies’ (AMCs) digital platforms from November 1, 2026. SEBI Chairman Tuhin Kanta Pandey announced the change on October 28, adding that investors who choose regular plans must be informed about their higher expense ratios. The move is intended to improve transparency and make investment costs more visible when people purchase mutual funds online.
The change could affect how new investors select mutual fund schemes through AMC websites and apps. Direct and regular plans of the same scheme invest in the same portfolio and are managed by the same fund manager, but their distribution arrangements and costs differ. Direct plans generally have lower expense ratios because they do not include distributor commissions. Regular plans will remain available, allowing investors to continue using distributors for assistance with selecting and managing their investments.
Key Takeaways
- Effective date: Direct plans become the default option on AMC digital platforms from November 1, 2026.
- Higher-cost disclosure: Investors choosing regular plans must be informed about their higher expense ratios.
- Same underlying investments: Direct and regular plans of the same scheme share the same portfolio and fund manager.
- Potential long-term impact: Lower expenses can help investors retain more of their investment returns over time.
- Regular plans remain available: SEBI’s announcement does not abolish regular plans or require investors to switch existing holdings.
- Investor choice remains important: Direct plans may suit self-directed investors, while regular plans can be useful for those who value distributor assistance.
What Has SEBI Announced?
SEBI Chairman Tuhin Kanta Pandey announced the policy at the NDTV Profit IGNITE event in Mumbai on October 28, 2026. Under the announced change, direct plans will be the default option on AMC digital platforms from November 1.
Investors who select regular plans must be informed about the higher expense ratios associated with those options. The aim is to ensure that customers understand the cost implications of their choices rather than selecting a plan without noticing the difference.
The announcement is part of SEBI’s broader efforts to improve investor protection and transparency in India’s securities market. The regulator has also discussed reviewing IPO frameworks, monitoring how companies use funds raised from public issues and expanding the use of technology in compliance supervision.
The immediate change, however, concerns the default selection on AMC digital platforms. Investors should not assume that every independent investment app or third-party platform will follow the same default arrangement unless the applicable requirements confirm it.
What Is the Difference Between Direct and Regular Mutual Fund Plans?
Direct and regular plans are two ways to invest in the same mutual fund scheme. Their underlying portfolio and investment strategy are the same, but the route through which investors purchase them differs.
| Feature | Direct plan | Regular plan |
|---|---|---|
| Purchase route | Directly through the mutual fund company or an eligible direct-plan platform | Through a mutual fund distributor or intermediary |
| Distributor commission | No distributor commission included in the plan’s expense structure | Distribution-related costs are generally reflected in expenses |
| Expense ratio | Generally lower | Generally higher |
| Underlying portfolio | Same as the corresponding regular plan | Same as the corresponding direct plan |
| Fund manager | Same | Same |
| Investor support | Investor generally manages fund selection independently or uses separate advice | Distributor may provide assistance, depending on the service |
| Availability after November 1 | Default option on AMC digital platforms | Still available, with disclosure of higher expenses |
The key difference is not that one plan invests in better assets than the other. Both represent investments in the same scheme. The distinction is primarily the cost of distribution and the services associated with the purchase route.
Investors should compare the direct and regular versions of the exact same scheme rather than assuming that all direct plans are cheaper than every other mutual fund product.
How Lower Expense Ratios Can Affect Returns
A mutual fund’s expense ratio represents the annual operating expenses charged to the scheme as a proportion of its assets. These expenses reduce the returns available to investors.
Because direct plans generally exclude distributor commissions, their expense ratios are lower than those of corresponding regular plans. The difference may appear small in a single year, but it can compound over a long investment period.
Consider a hypothetical example in which an investor’s portfolio earns a 10% annual return before expenses. Assume one plan has annual expenses of 0.5%, while another has expenses of 1%. The approximate annual returns after expenses would be 9.5% and 9%, respectively.
If an investor starts with ₹1 lakh and leaves it invested for 20 years, the illustrative outcomes would be:
| Hypothetical scenario | Annual return after expenses | Value after 20 years |
|---|---|---|
| Lower-cost plan | 9.5% | Approximately ₹6.13 lakh |
| Higher-cost plan | 9.0% | Approximately ₹5.60 lakh |
| Difference | 0.5 percentage point | Approximately ₹53,000 |
These figures are illustrative calculations, not a forecast of mutual fund performance. Actual returns fluctuate, and expense ratios vary by scheme and plan. The example demonstrates how a recurring cost difference can influence long-term wealth accumulation.
A lower expense ratio does not guarantee higher investment returns in every period, and it does not remove market risk. Investors still need to choose schemes that fit their goals, time horizons and risk tolerance.
Will Existing Regular Mutual Fund Investments Automatically Become Direct Plans?
SEBI’s announcement concerns the default option on AMC digital platforms from November 1. It does not state that existing regular-plan investments or systematic investment plans (SIPs) will automatically convert into direct plans.
Investors who already hold regular plans should therefore check their account statements and scheme details rather than assume that their investments will change automatically.
Anyone considering a switch should understand the process and its possible consequences. Depending on the investment and applicable rules, a switch between plans may be treated as a redemption from one plan and a purchase in another, potentially creating tax consequences or exit loads.
Investors should check the scheme’s documents and consult a qualified tax or investment professional where necessary before making changes.
Should Investors Choose Direct Plans or Regular Plans?
The decision depends on how comfortably an investor can manage mutual fund investments and whether they need assistance.
Direct plans may suit investors who:
- Understand mutual fund categories and investment risks.
- Can compare schemes and select investments independently.
- Are comfortable monitoring their portfolio and reviewing their financial goals.
- Want to avoid distributor-related costs.
Regular plans may suit investors who:
- Prefer assistance from a mutual fund distributor.
- Want help understanding scheme options and completing investment-related processes.
- Value ongoing support and are willing to pay the associated higher expenses.
Investors should also distinguish between distribution and regulated investment advice. A distributor’s services are not necessarily equivalent to personalized financial planning, and the nature of the support can vary.
Choosing a direct plan simply because it has a lower expense ratio may not be appropriate for someone who lacks the confidence to select and monitor investments. Equally, investors who can manage their portfolios independently should understand what they are paying for when selecting a regular plan.
What Investors Should Do Before November 1
Investors planning to purchase mutual funds through AMC websites or apps should take a few practical steps.
First, check whether the selected option is a direct or regular plan. Read the scheme name and plan details carefully before confirming an investment.
Second, compare the expense ratios of the direct and regular versions of the same scheme. The difference is more informative than comparing unrelated funds.
Third, understand the support available through the purchase route. Investors who need guidance should consider how they will obtain it if they choose a direct plan.
Finally, avoid changing existing investments solely because the default selection is changing. Review tax implications, exit loads, investment objectives and the suitability of the underlying scheme before making a decision.
The Bigger Picture
SEBI’s announcement highlights the growing importance of transparency as more Indians invest through digital platforms. Defaults influence customer choices, particularly when people are new to financial products or are unfamiliar with the differences between investment options.
Making direct plans the default could encourage investors to pay closer attention to expense ratios. However, the policy’s impact will depend on how platforms present the options, how clearly costs are disclosed and whether investors understand the services associated with regular plans.
The broader objective is not simply to minimize expenses in every case. It is to help investors make informed choices about costs, risks and the level of support they need. A transparent process can improve decision-making while preserving the ability to choose a plan that suits each investor’s circumstances.
FAQs
1. When will direct mutual fund plans become the default?
Direct plans will become the default option on AMC digital platforms from November 1, 2026, according to SEBI Chairman Tuhin Kanta Pandey’s announcement on October 28.
2. Will regular mutual fund plans be discontinued?
No. The announcement says investors choosing regular plans must be informed about their higher expense ratios. It does not announce the discontinuation of regular plans.
3. Are direct mutual fund plans always better than regular plans?
Not necessarily. Direct plans generally have lower expense ratios, but investors must also consider whether they can select and manage investments independently. Regular plans may offer distributor assistance, depending on the service provided.
4. Will existing regular SIPs automatically change to direct plans?
The announcement does not say that existing SIPs or holdings will automatically convert. Investors should check their investments and the applicable terms before making any changes.
5. Why do direct plans generally have lower expense ratios?
Direct plans are purchased without a distributor, so distributor commissions are not included in their expense structure. Regular plans generally include distribution-related expenses, resulting in a higher expense ratio.
Looking Ahead
The November 1 change will make the direct-plan option more prominent on AMC digital platforms and require clearer disclosure when investors choose regular plans. Investors should watch how individual AMCs implement the new default and read the plan details carefully when placing new orders.
Over the longer term, the effect will depend on whether investors use the additional transparency to make choices that fit their needs. Understanding expenses is an important part of investing, but scheme suitability, diversification, time horizon and risk tolerance remain essential considerations for building a mutual fund portfolio.
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