The Securities and Exchange Board of India (SEBI) has announced a key change aimed at improving transparency in mutual fund investments. From November 1, 2026, direct mutual fund plans will become the default option on Asset Management Company (AMC) platforms, making it easier for investors to access lower-cost investment options.
SEBI Chairman Tuhin Kanta Pandey announced the move in Mumbai, highlighting the need to make investment costs more transparent. Under the new arrangement, investors visiting AMC platforms will see direct plans as the default choice. Those opting for regular mutual fund plans will receive a clear warning about their comparatively higher expenses.
The change is expected to help investors better understand the cost difference between direct and regular mutual fund plans before making investment decisions.
What Are Direct Mutual Fund Plans?
Direct mutual fund plans allow investors to invest directly with a mutual fund house without going through a distributor who receives a commission for distributing the scheme. Since distributor commissions are not included in the expense ratio of direct plans, these plans generally have a lower expense ratio than their regular counterparts.
A lower expense ratio can help investors retain a larger portion of their investment returns over the long term. However, direct plans require investors to select and monitor their investments independently or obtain investment advice separately.
Direct vs Regular Mutual Fund Plans: Key Differences
Direct and regular plans are available under the same mutual fund scheme and generally invest in the same underlying portfolio. The primary difference lies in their distribution arrangements and expenses.
| Particulars | Direct Mutual Fund Plan | Regular Mutual Fund Plan |
|---|---|---|
| Investment route | Directly through the mutual fund house or its platform | Through a distributor or intermediary |
| Expense ratio | Generally lower | Generally higher |
| Distributor commission | No distributor commission included in the plan's expenses | Distribution commission is generally included in scheme expenses |
| Investment assistance | Investor manages investments independently or obtains separate advice | Distributor may provide investment assistance |
| Default on AMC platforms | From November 1, 2026 | Available as an alternative |
Why Is SEBI Making Direct Plans the Default Option?
The decision is intended to improve investor awareness of mutual fund costs. Many investors may not fully understand how expense ratios and distribution commissions affect their investments over time.
By making direct plans the default option and requiring a clear warning for regular plans, SEBI aims to ensure that investors are better informed before selecting an investment route.
Even a small difference in the annual expense ratio can affect long-term wealth creation because investment expenses reduce the amount available for compounding. However, a lower expense ratio does not guarantee better investment returns, as mutual funds remain subject to market risks.
Direct Mutual Fund Investments Gain Popularity
Direct mutual fund plans have reportedly gained popularity among retail investors in recent years. According to the figures provided, their share of retail mutual fund assets increased from 21% in 2021 to 37% in 2026.
The growing adoption of direct plans reflects increasing investor interest in lower-cost investment options and digital investment platforms. SEBI's latest move could further encourage investors to compare mutual fund expenses before investing.
However, direct plans may not be suitable for everyone. Investors who require assistance with fund selection, portfolio allocation and investment decisions may continue to prefer regular plans.
Will Existing Regular Mutual Fund Investments Be Converted into Direct Plans?
SEBI's announcement concerns the default option on AMC platforms from November 1, 2026. It does not, by itself, establish that existing regular mutual fund investments or systematic investment plans (SIPs) will automatically be converted into direct plans.
Investors should review the applicable AMC instructions before making changes to their existing investments. Switching between regular and direct plans may have tax implications and could be treated as a redemption and fresh investment for applicable purposes.
What Should Mutual Fund Investors Do from November 1?
Investors planning to purchase mutual fund units through AMC platforms should check which plan they are selecting and compare the expense ratios of the direct and regular options of the same scheme.
Direct plans may be suitable for investors who can independently research, select and monitor mutual funds. Regular plans may be appropriate for investors who value distributor assistance and are comfortable paying the associated costs.
The important consideration is not simply choosing the plan with the lowest expense ratio, but understanding the services offered, investment risks and overall suitability of the option.
SEBI's move places greater emphasis on informed investment decisions and cost transparency, helping investors understand how the choice between direct and regular mutual fund plans can affect their long-term financial goals.
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