SEBI to make direct MF plans default from Nov 1

From November 1, 2026, direct plans will become the default choice on digital platforms operated by asset management companies for mutual fund investments. When investors transact online with these platforms, the direct plan of a scheme will be presented first. This change is designed to ensure that investors see the typically lower-cost option upfront when making mutual fund investment decisions.

The new requirement does not remove the possibility of investing through regular plans. Instead, investors who deliberately choose a regular plan must be clearly informed that such plans carry a higher expense ratio. This disclosure is intended to make the cost difference between direct and regular options more transparent at the point of purchase.

Direct and regular plans invest in the same underlying mutual fund scheme and share the same portfolio. The primary difference lies in distribution-related costs that feed into the total expense ratio of each plan. Regular plans are distributed through intermediaries and typically include commissions paid to these distributors, which raises their expense ratio.

Direct plans are purchased directly from the fund house and do not include distributor commissions. As a result, they usually come with lower overall costs than regular plans. Under the new framework, digital platforms must highlight this cost distinction and notify investors about the higher expenses attached to regular plans whenever that option is selected.

SEBI Chairman Tuhin Kanta Pandey has stressed that easy market access through digital channels does not guarantee that investors fully understand financial products. He has urged investors to be cautious when buying direct mutual funds and to assess whether the absence of distributor support suits their needs. The emphasis is on ensuring that investors recognise both the services they are foregoing and the costs they are saving.

Pandey has also highlighted a gap between awareness of securities market products and actual participation. An investor survey cited by SEBI found that 63% of households were aware of at least one securities market product, but only about 9.5% participated. Among existing investors, only 36% were assessed as having moderate or high market knowledge, underscoring the regulator’s focus on informed participation.

The move to make direct plans the default is part of a wider four-point agenda centred on simpler rules, deeper markets, stronger investor protection and greater use of technology. SEBI is revisiting the framework for main-board initial public offerings and follow-on public offers, as well as the SME IPO framework and the Innovators Growth Platform, to improve access to public capital for growing businesses. The regulator has also proposed stronger monitoring of how issue proceeds are used and is reviewing the framework for debenture trustees.

To attract more foreign portfolio investment, SEBI is working to reduce onboarding time for such investors to five business days by streamlining processes with the Reserve Bank of India. Pandey put equity market capitalisation at around Rs 470 lakh crore, outstanding corporate bonds at roughly Rs 61 lakh crore and mutual fund assets at about Rs 83 lakh crore.