Direct Mutual Fund Plans will become the default investment option on asset management companies’ (AMCs) digital platforms from November 1, 2026.
The Securities and Exchange Board of India (SEBI) has announced this change to improve transparency and help investors understand the cost differences between direct and regular mutual fund investments.
The announcement was made by SEBI Chairman Tuhin Kanta Pandey at NDTV Profit Ignite’s Diwali event.
Under the new arrangement, investors visiting AMC digital platforms will see direct plans as the default option, while those choosing regular plans must be informed about their higher expense ratios.
The change is important for both new and existing mutual fund investors, particularly those who invest through online platforms.
However, regular mutual fund plans will continue to remain available for investors who prefer them.
What Changes in Mutual Fund Rules From November 1?
Starting November 1, asset management companies will make direct plans the default selection on their digital investment platforms.
This means investors accessing these platforms will initially be presented with the direct option instead of the regular plan.
Investors who want to select a regular mutual fund plan will still be able to do so.
However, AMCs will have to inform them about the higher expense ratio associated with regular plans before they proceed.
The objective is to make investors more aware of the costs involved in mutual fund investments.
By highlighting the expense difference, SEBI wants investors to make informed decisions rather than selecting an investment option without understanding its charges.
Importantly, this change does not mean that regular plans are being discontinued or that investors will be forced to invest directly.
Difference Between Direct and Regular Mutual Fund Plans
Direct and regular plans are two investment options offered under the same mutual fund scheme.
Both invest in the same underlying portfolio and are managed by the same fund manager.
The main difference is the distribution channel and the expenses associated with each option.
In a direct plan, investors purchase mutual fund units directly from the asset management company without involving a distributor or intermediary for the transaction.
Since distributor commissions are not included, direct plans generally have lower expense ratios.
Regular plans, on the other hand, are purchased through distributors, brokers or financial advisers.
Their expense ratios generally include distribution-related commissions, making them more expensive than corresponding direct plans.
Although both options invest in the same portfolio, their net returns can differ because of the difference in expenses.
How Lower Expense Ratios Can Affect Returns
The expense ratio is an important factor that mutual fund investors should consider before selecting a scheme.
It represents the annual expenses charged by a mutual fund scheme as a percentage of its assets.
Even a relatively small difference in expenses can affect an investor’s overall returns over an extended period.
For example, if two plans of the same scheme generate identical gross investment returns, the plan with lower expenses will generally deliver higher net returns, assuming other factors remain the same.
This difference can become more noticeable over long investment periods because expenses are reflected in the scheme’s net asset value (NAV).
However, choosing a direct plan does not guarantee higher investment returns in every situation.
Market performance, the underlying portfolio and the investor’s investment horizon continue to play important roles.
Will Investors Still Be Able to Choose Regular Plans?
Yes. SEBI’s announcement does not remove the regular mutual fund investment option.
Investors who prefer assistance from distributors or financial advisers can continue choosing regular plans.
The key change is that they must be informed about the higher expense ratio before selecting that option on AMC digital platforms.
Direct plans may be suitable for investors who understand mutual funds and are comfortable researching and managing their investments independently.
Regular plans may be more appropriate for investors who value professional assistance with fund selection, financial planning and investment-related decisions.
However, investors should consider the cost of distribution services before making a choice.
The decision should depend on an individual’s financial knowledge, investment needs and preference for professional guidance rather than expense ratios alone.
What Mutual Fund Investors Should Do Next
Investors planning to start a new mutual fund investment from November 1 should compare the direct and regular versions of their chosen scheme.
They should check the expense ratio, investment objective, risk level and historical performance before making a decision. Investors should also understand that past returns do not guarantee future performance.
Those already investing through regular plans do not need to assume that their existing investments will automatically be converted into direct plans because of this announcement.
The change concerns the default selection on AMC digital platforms.
Overall, SEBI’s move is aimed at making mutual fund costs more transparent and ensuring that investors understand the financial implications of their choices.
The availability of both investment options means investors can continue selecting the arrangement that suits their needs.
