SEBI Makes Direct Mutual Fund Plans the Default From November 1: What Changes for Investors

From November 1, buying a mutual fund through a fund house’s own website or app in India will look a little different. The direct plan will be the default option, India’s market regulator has said, in a change aimed at making the cost of investing clearer before an investor commits money.

The change was announced by Securities and Exchange Board of India (SEBI) chairman Tuhin Kanta Pandey at the NDTV Profit IGNITE event in Mumbai on October 28. From November 1, direct plans will be the default option on the digital platforms of asset management companies (AMCs), and investors who choose a regular plan must be informed about its higher expense ratio.

Direct vs Regular: The Same Fund, Different Cost

Direct and regular plans are two options of the same mutual fund scheme. Both invest in the same underlying portfolio and are managed by the same fund manager. The difference is how they are bought — and what that route costs.

Direct plans are bought directly from the fund house, without a distributor, so they carry no distributor commission and therefore have a lower expense ratio. Regular plans are bought through distributors or intermediaries, and their higher expense ratio reflects those distribution costs. That cost gap, small in any single year, is the whole point of the new default: SEBI wants investors to see the cheaper option first, and to understand what they are paying for when they choose the costlier one.

Reporting on the announcement put the distributor economics in plain numbers. Mutual fund distributors earn trail commissions of 0.50–1.17 per cent on equity schemes, 0.70–1 per cent on ELSS tax-saving funds, 0.50–0.80 per cent on hybrid and balanced advantage funds, and 0.20–0.50 per cent on debt funds, according to the BusinessLine report on Pandey’s address. Those commissions are ultimately borne by investors in regular plans through the higher expense ratio.

From November 1, Direct Plans will be the default option on digital platforms of AMCs. Investors choosing Regular Plans must be informed about their higher expense ratio.

What Actually Changes on November 1

For an investor opening an AMC’s app or website from November 1, the direct plan should be the preselected option. Choosing the regular plan instead will come with an explicit warning that its expense ratio is higher. SEBI has also made it mandatory for consolidated account statements to disclose the commission paid to distributors on all SIP transactions made through regular plans, Pandey said, so the cost is not just flagged at purchase but remains visible in statements.

What does not change matters just as much. The announcement does not discontinue regular plans, and it does not say that existing investments will automatically switch. An investor with a regular-plan SIP running through a distributor will keep that SIP as it is unless they take action themselves. The change is about the default for new purchases on AMC platforms — it is not a conversion of old holdings, and the announcement as reported does not establish that independent third-party investment platforms will adopt the same default.

• Direct plans become the default on AMC digital platforms from November 1, 2026.
• Regular-plan buyers must be informed about the higher expense ratio.
• Consolidated account statements must disclose distributor commission on regular-plan SIPs.
• Direct and regular plans hold the same portfolio under the same fund manager.
• Distributor trail commissions reported: 0.50–1.17% on equity schemes, 0.20–0.50% on debt funds.
• Regular plans continue to exist; no automatic switch of existing investments was announced.

Why a Small Cost Gap Matters Over Time

The reason regulators care about a fraction of a percentage point is compounding. A lower expense ratio leaves more of a fund’s return in the investor’s account each year, and that difference itself compounds over a long investment horizon. A Moneycontrol illustration of the effect, built on stated assumptions rather than a promise of returns, showed how large the gap can grow: assuming a Rs 10,000 monthly SIP, a hypothetical 12 per cent annual return before base expenses, and 20 years of investing, the total invested would be Rs 24 lakh, with the direct plan illustrated at around Rs 84.53 lakh against around Rs 75.06 lakh for the regular plan — a difference of approximately Rs 9.47 lakh under those assumptions alone.

That illustration is not a forecast. Actual returns vary, expense ratios differ between schemes, and the gap between a specific direct and regular plan depends on that scheme’s own costs. But it explains why SEBI is treating the default as an investor-protection measure rather than a cosmetic tweak: most investors never actively choose to pay more, they simply accept whichever option is presented first. Changing the default changes what the inattentive investor ends up with, while leaving the advised route open for those who want it — provided they now see its price.

The move lands in a week when investors have had plenty to think about. Technology stocks slumped as heavy AI spending spooked investors, wiping hundreds of billions from Alphabet’s market value, while the US economy grew 3.4 per cent in the third quarter. Against that backdrop of market swings, a rule about fund costs is a reminder that what investors keep is determined not only by markets, but by fees.

A Wider Reform Agenda Behind the Announcement

Pandey’s Mumbai address covered more than mutual funds. He outlined plans to strengthen monitoring of IPO proceeds, review the rules for main-board, follow-on and SME IPOs and the Innovators Growth Platform, cut foreign portfolio investor onboarding from months to as little as five business days through digital workflows, and expand AI-based tools for market supervision. SEBI is also examining net settlement for mutual fund transactions, which would streamline fund flows across the industry.

Those items are plans and reviews, not completed reforms, and they sit alongside the mutual fund change as part of a broader push Pandey framed around investor protection and transparency. The mutual fund default is the one with a firm date — November 1 — and the one most ordinary investors will notice first, because it changes the screen they see when they invest. As with the funding deadlines and investor decisions shaping the AI boom, the fine print of costs is becoming part of the story, not an afterthought.

What to Watch Next

What to watch next is how AMC platforms actually implement the default from November 1 — whether the direct option is clearly preselected, how prominently the regular plan’s higher cost is disclosed, and whether distributors and advisers argue the change undervalues advice. The other tests are whether consolidated account statements make distributor commissions genuinely easy to spot, whether investors check which plan their existing SIPs are in, and whether SEBI’s wider IPO and foreign-investor reforms follow with their own firm dates. Until then, the practical takeaway for investors is the one in the announcement itself: from November 1, the cheaper plan comes first, and the costlier one must show its price.