What happened

SEBI chairman Tuhin Kanta Pandey announced on October 28, 2026, that from November 1, 2026, all asset management company websites and apps must display direct plans as the default option when investors choose a mutual fund scheme. Regular plans will still be available, but investors who choose them must be explicitly informed that regular plans carry higher expenses than direct plans.

This directive applies only to purchases made directly through AMC platforms. Transactions through third-party distributors, brokers, and financial advisers are unaffected, since those intermediaries are compensated through the regular plan's distribution commission.

Why this matters

Direct and regular plans of the same mutual fund hold an identical portfolio managed by the same fund manager. The only difference is cost. Regular plans embed a distribution commission in their expense ratio, which is the annual fee deducted from the fund's assets to cover management and distribution costs. Direct plans have no distribution commission, so their expense ratio is lower by anywhere from 0.5% to 1.5% per year depending on the fund category.

That gap, compounded over years, becomes substantial. Consider a monthly SIP of 10,000 rupees continued for 20 years. Assuming a pre-expense return of 12% per year, the direct plan corpus would grow to approximately 84.53 lakh rupees. The same SIP in the regular plan of the same fund would grow to approximately 75.06 lakh rupees. The difference is roughly 9.47 lakh rupees on a total investment of 24 lakh rupees — essentially free money left on the table by paying the distributor commission unnecessarily.

The new default rule is designed to reduce this invisible leakage for self-directed investors who do not need or use distributor services but end up in regular plans simply because regular plans were shown first, or because they did not know the difference.

Existing investments are not affected by the change. An investor already running SIPs in regular plans will not be automatically shifted to direct plans.

Action plan

Log into your AMC account or investment app and check whether your current funds are in direct or regular plans. This information is usually visible in the scheme name itself — direct plans carry the label Direct in the scheme name.

Before switching from regular to direct, calculate the tax and exit-load implications. Switching counts as a redemption followed by a fresh purchase, which triggers capital gains tax on any accumulated gain. Equity fund gains held for more than one year are taxed at 12.5% as long-term capital gains above the 1.25 lakh rupee annual exemption. Short-term gains within one year are taxed at 20%.

For new SIPs or lump-sum investments where you do not need ongoing advice, go directly to the AMC website or app and select the direct plan. This is now the default, so it requires no extra steps.

If you rely on a financial adviser for fund selection and portfolio rebalancing, the cost of regular plans may be justified. Ask your adviser to quantify the value of their service versus the annual expense difference between direct and regular plans in your portfolio.

Bottom line

SEBI's direct-plan default is a small but meaningful step toward fairer disclosure in mutual fund distribution. Over long investment horizons, the expense difference between direct and regular plans is not trivial — it can exceed the value of many lump-sum investments made over the same period. Self-directed investors who manage their own portfolios should act on this and ensure their future purchases land in the lower-cost option.

Sources: Business Standard personal finance desk, SEBI board announcement October 28 2026, BonVista investor guide to SEBI mutual fund rules 2026.