From November 1, 2026, investing in mutual funds through Asset Management Companies (AMCs) websites and apps comes with a new default option. Direct Mutual Fund Plans are now the default, following an announcement by SEBI Chairman Tuhin Kanta Pandey.
But why does this matter? And how can choosing between Direct and Regular Mutual Funds affect your money?
Let's understand.
What Has Changed?
Earlier, investors visiting mutual fund companies' websites and apps could come across Regular Plans as a pre-selected option.
Now, Direct Plans will be the default option on AMC digital platforms. If an investor chooses a Regular Plan, the platform must inform them about its higher expense ratio.
The objective is simple: make investors more aware of the costs they pay while investing.
First, Understand Direct vs Regular Mutual Funds
Suppose you want to invest ₹5,000 every month in a mutual fund.
You will generally find two options: Direct Plan and Regular Plan.
1. Direct Mutual Fund Plan
In a Direct Plan, you invest directly with the mutual fund company without involving a distributor or agent.
Since there is no distributor commission involved, the expense ratio is generally lower.
This means a smaller portion of your investment goes towards fund-related expenses.
2. Regular Mutual Fund Plan
In a Regular Plan, you invest through a mutual fund distributor or intermediary.
The distributor helps you with investment-related services, and the commission paid for distribution is included in the scheme's expenses.
As a result, the expense ratio is generally higher than that of the Direct Plan.
Do Both Plans Invest in the Same Mutual Fund?
Yes!
This is something many first-time investors don't know.
Direct and Regular Plans of the same mutual fund scheme have:
- The same investment portfolio.
- The same fund manager.
- The same investment objective.
- The same underlying market risks.
The major difference is the expense ratio.
How Can a Small Expense Difference Affect Your Wealth?
Let's understand with an example.
Suppose you invest ₹10,000 every month through a SIP for 20 years.
Assume the Direct Plan delivers an annual return of 12%, while the Regular Plan delivers 11%, purely to illustrate the impact of a 1 percentage-point return difference.
- Total investment: ₹24 lakh
- Estimated Direct Plan value: ₹99.9 lakh
- Estimated Regular Plan value: ₹87.35 lakh
Difference: Approximately ₹12.55 lakh!
This example shows how even a small difference in annual costs can make a significant difference over a long investment period.
Actual returns and expense ratios vary, and neither plan guarantees these returns.
Does This Mean Everyone Should Choose Direct Plans?
Not necessarily!
Direct Plans can be useful for investors who understand mutual funds, can research schemes independently and are comfortable managing their portfolios.
Regular Plans can be useful for investors who need assistance with fund selection, investment planning and ongoing guidance.
The important thing is to understand what you are paying for and whether the services justify the additional cost.
Will Your Existing Regular SIP Automatically Become a Direct SIP?
No.
This new default does not automatically convert your existing Regular Mutual Fund investments or SIPs into Direct Plans.
If you want to switch, you need to understand the process and check possible exit loads and capital gains tax implications before making a decision.
What Should Investors Do Now?
Before investing in a mutual fund, remember these three things:
1. Compare the expense ratios of Direct and Regular Plans of the same scheme.
2. Understand whether you need a distributor's guidance or can manage investments independently.
3. Don't select a mutual fund only because its expense ratio is low. Check its investment objective, risk and suitability for your financial goals.
The Bottom Line
SEBI's new move is a reminder that investing is not just about how much money you invest or how much return you earn. It is also about how much you pay in costs.
A small expense ratio difference might look insignificant today, but over 10, 15 or 20 years, it can affect the wealth you build.
So, before choosing a mutual fund, don't just look at returns. Look at the costs too!
