SEBI's Direct Mutual Fund Plan Default Rule Takes Effect From November 1

Key Takeaways

• Direct mutual fund plans became the default selection on AMC websites and mobile applications from 1 November 2026.
• Investors selecting regular plans are to be informed about their higher expense ratios compared with direct plans.
• The change does not automatically convert existing regular-plan investments or discontinue regular mutual fund plans.

Direct Plans Become Default on AMC Digital Platforms

Investors accessing mutual funds through asset management companies' websites and mobile applications now encounter direct plans as the default option following a regulatory change effective 1 November 2026.

SEBI Chairman Tuhin Kanta Pandey announced the measure on 28 October, outlining the regulator's intention to improve transparency around mutual fund costs.

The Economic Times carried a fresh explanation of the change on 4 November.

The new framework primarily affects how mutual fund plan choices are displayed to investors making transactions through AMC-operated digital platforms.

What Changes for Mutual Fund Investors?

Mutual fund schemes commonly offer direct and regular plans.

Both plans generally invest in the same underlying portfolio and follow the same investment objective. Their net asset values can differ because of differences in expenses.

Direct plans do not include distributor commissions, while regular plans involve distribution arrangements and typically carry higher expense ratios.

Under the revised approach, AMC digital platforms must present direct plans as the default choice.

Investors choosing regular plans are to receive information about the comparatively higher expenses associated with those plans.

The change does not prohibit regular plans or remove investors' ability to select them.

Why Expense Ratios Matter

A mutual fund's total expense ratio represents expenses charged to the scheme, expressed as a percentage of its assets.

These charges affect the returns reflected in the scheme's NAV.

Two plans holding the same underlying portfolio may therefore report different NAV movements over time because their expense structures differ.

The Economic Times reported that, based on AMFI data cited in its 4 November article, expense ratios across regular plans ranged from 0.36% to 4.3%, compared with 0% to 2.7% across direct plans.

These are broad ranges across plans, not a direct comparison of the two options within a single scheme.

Existing Investments Remain Unchanged

The revised default applies to investment choices made through relevant AMC digital channels.

It does not automatically convert existing regular-plan holdings into direct plans.

Existing systematic investment plans are also not automatically switched merely because the default presentation has changed.

A separate investor-initiated plan switch can have applicable tax or transaction implications under prevailing rules.

The measure changes how investors are presented with plan alternatives while retaining the distinction between direct investments and distributor-assisted investments.

Verification: SEBI Chairman's announcement reported by Moneycontrol on 28 October; Business Standard on 30 October; The Economic Times on 4 November.

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