Direct plans to become default option from November 1: How choosing direct plans could change your mutual fund SIP returns?

“From November 1, Direct Plans will be the default option on digital platforms of AMCs. Investors choosing Regular Plans must be informed about their higher expense ratio,” Pandey said at NDTV Profit IGNITE event in Mumbai.

He further said investors choosing regular plans must be informed about their higher expense ratios. The move is part of SEBI’s efforts to improve transparency and help investors make informed decisions.

For investors, the change puts the spotlight on a detail that can easily be overlooked when starting a mutual fund systematic investment plan (SIP): the cost of investing. Direct and regular plans invest in the same portfolio, but their expense ratios differ. Over time, that difference can affect the final amount an investor accumulates.

For someone investing ₹10,000 every month, the question is how much the choice between the two plans could matter over a 10-year period.

Direct vs regular mutual funds: What is the difference?

Direct and regular plans belong to the same mutual fund scheme and invest in the same underlying portfolio. The main difference is how investors buy them and the costs involved.

• Direct plans are purchased directly from the mutual fund house, without a distributor. They generally have lower expense ratios because distributor commissions are not included in their expenses.

• Regular plans are purchased through distributors or intermediaries. Their expense ratios generally include distribution-related costs, making them higher than those of the corresponding direct plans.

Will existing regular SIPs automatically become direct plans?

The announcement concerns the default option on AMC digital platforms. It does not mean investors should assume that their existing regular-plan investments or SIPs will automatically convert to direct plans.

Investors considering a change should first check the terms applicable to their investments and understand the implications of switching.

How much difference could a ₹10,000 monthly SIP make?

An earlier Upstox analysis compared direct and regular plans across five equity mutual funds, using a hypothetical monthly SIP of ₹10,000 over 10 years. The comparison showed that differences in the final investment corpus could run into lakhs of rupees.

What should investors do?

Those who are comfortable selecting funds and managing their portfolios independently may prefer direct plans because of their lower expenses. Investors who rely on distributors for help with fund selection and ongoing guidance may find regular plans more suitable, despite the higher costs.

A lower expense ratio can help preserve more of the returns generated by a fund, but it does not remove market risk or guarantee higher returns. The right choice depends on the investor’s knowledge, needs and ability to manage investments.

SEBI survey shows gap in investors’ market knowledge

The emphasis on investment costs comes against a broader challenge: many households remain outside the securities market, while knowledge among existing investors is also uneven.

In his speech, Pandey cited SEBI’s Investor Survey, which found that 63% of households were aware of at least one securities-market product, but only around 9.5% participated in the market. Even among investors, just 36% had moderate or high market knowledge.