SEBI Makes Direct Plans the Default on Mutual Fund Websites and Apps From November 1 — What Changes for Your SIP, and When Switching Is Worth It
SEBI Makes Direct Plans the Default on Mutual Fund Websites and Apps From November 1 — What Changes for Your SIP, and When Switching Is Worth It
From November 1, 2026, investors buying through a fund house’s own website or app will start with the lower-cost direct plan selected. Regular plans remain available, existing SIPs do not change on their own, and moving old investments can trigger tax.
You open a fund house’s app to start a new SIP. Until now, depending on the app, you might have landed on the regular plan of a scheme without noticing that a cheaper version of the same fund existed. From November 1, that changes. On AMC websites and apps, the direct plan will be selected by default, and if you pick the regular plan instead, you will be told it costs more.
It sounds like a small design change. Over a 20-year SIP, the difference between the two plans can run into lakhs. But the rule does not touch SIPs you already have, and switching an existing investment is not free. Here is what changes, what does not, and how to decide what to do.
Direct Versus Regular: The Same Fund at Two Prices
Every mutual fund scheme comes in two versions. They hold the same portfolio and are run by the same fund manager. The difference is cost. A regular plan includes a commission paid to the distributor who sold it, so its total expense ratio, or TER, is higher. A direct plan, which SEBI introduced from January 1, 2013, has no distributor commission. Because the expense ratio is deducted from the fund’s returns every day, the direct plan’s NAV grows slightly faster.
In these three popular schemes, the gap is about 0.61 to 0.62 percentage points a year. On an unchanged ₹1 lakh balance, 0.61 points is about ₹610 a year. That looks small, but it is charged every year on a growing balance, which is why it compounds into a large difference over a long SIP.
What the regular plan pays for
What people often get wrong is treating the regular plan as a mistake. The extra cost pays the distributor, who may help with fund selection, paperwork, nominations and keeping you invested in a falling market. For investors who need that help and use it, the cost can be worth paying. The new rule does not ban regular plans; it simply makes the cheaper option the starting point on AMC platforms and requires the cost difference to be disclosed.
What Changes on November 1, and What Does Not
The change is narrower than many headlines suggest. It applies to one channel: the websites and apps run by AMCs themselves. INDmoney notes that bank apps, distributor portals, brokers and independent investment platforms are not covered by the announcement.
| Your situation | What changes | Tax impact | What to do |
|---|---|---|---|
| New SIP on an AMC app | Direct plan selected by default | None | Keep direct unless you want an adviser |
| New SIP choosing regular | Higher cost disclosed before you confirm | None | Confirm you value the service |
| Existing regular SIP | Nothing automatic | None if left as is | Stop and restart in direct if you wish |
| Existing regular units | Nothing automatic | Switch is a sale; tax may apply | Weigh tax against future savings |
| Already in direct | Nothing | None | No action |
| Investing via broker or bank app | Not covered by the announcement | None | Check which plan you are buying |
How Much the Default Could Save You
To measure the impact, we took a ₹10,000 monthly SIP and assumed a 12% annual return before expenses. Deducting the HDFC Flexi Cap expense ratios above gives net returns of 11.25% for the direct plan and 10.64% for the regular plan. These are illustrative assumptions, not promised returns.
| SIP period | Invested | Direct plan value | Regular plan value | Difference |
|---|---|---|---|---|
| 5 years | ₹6 lakh | ₹7.89 lakh | ₹7.78 lakh | ₹0.12 lakh |
| 10 years | ₹12 lakh | ₹21.34 lakh | ₹20.67 lakh | ₹0.67 lakh |
| 15 years | ₹18 lakh | ₹44.25 lakh | ₹42.04 lakh | ₹2.21 lakh |
| 20 years | ₹24 lakh | ₹83.30 lakh | ₹77.47 lakh | ₹5.83 lakh |
| 25 years | ₹30 lakh | ₹149.84 lakh | ₹136.21 lakh | ₹13.63 lakh |
The gap is about 1.5% of the final value after five years, 7% after 20 years and 9% after 25 years. Business Standard’s own example, using different assumptions, put the 20-year difference at about ₹9.47 lakh. Either way, the longer the SIP, the more the cheaper plan matters.
Should You Move Your Existing SIP?
For future instalments, the answer is often yes if you do not use a distributor’s advice. Stopping a regular SIP and starting a direct one has no tax cost, because nothing is sold. The harder question is what to do with units you already hold in the regular plan.
The tax cost of switching old units
A switch from regular to direct is treated as a redemption, so any gain is taxed. For equity-oriented funds held by resident individuals, INDmoney notes, gains on units held up to 12 months are taxed at 20%, while long-term gains above ₹1.25 lakh in a year are taxed at 12.5%, plus surcharge and 4% cess. On exit loads, INDmoney reports that an AMFI communication dated April 9, 2025 asked AMCs to remove exit loads on regular-to-direct switches within the same scheme.
Debt and hybrid funds follow different rules
The rates above apply to equity-oriented funds. For debt funds bought on or after April 1, 2023, gains are generally taxed at your income tax slab rate, however long you hold them, so the timing benefit of waiting for 12 months does not apply in the same way. Hybrid funds can fall into either category depending on their equity share. Check how your specific fund is taxed before switching, or ask a tax professional.
Why a Default Matters More Than It Sounds
Defaults shape behaviour. Most people accept whatever option is pre-selected on a screen, especially when the alternatives look similar and the difference is a fraction of a percentage point. By making the cheaper plan the starting point on fund houses’ own platforms, SEBI is changing what happens when an investor does nothing, without banning anything.
The disclosure requirement works in the same direction. An investor who actively picks a regular plan will now be told it costs more, so the choice becomes a conscious one. For first-time investors, who make up a large share of the 66.40 lakh new SIP registrations AMFI reported for August 2026, that nudge could add up to significant savings across the market over time.
It also reflects how direct investing has grown. Since direct plans began in 2013, investors have increasingly used AMC apps, online platforms and advisers rather than commission-based distributors alone. The new default formalises the cheaper route on the platforms the fund houses themselves control.
The SIP Market This Rule Will Touch
The change matters because of scale. AMFI data shows record SIP inflows and more than 10 crore SIP accounts in 2026. Every new SIP started on an AMC platform after November 1 will start with the direct plan selected.
Pandey also cited a SEBI survey showing that 63% of Indian households knew of at least one securities market product, but only about 9.5% participated, Business Standard reported. Making the cheaper plan the default is a nudge aimed at new investors who might not know the difference.
How We Got Here
Mistakes to Avoid When Moving to Direct
Switching to direct plans is simple, but a few slips can cost more than the expense ratio saves.
- Picking a different scheme by mistake. Search results often show similar names. Make sure the direct plan is the same scheme, with “Direct” in its name, not a different fund from the same house.
- Running two SIPs at once. If you start a direct SIP before stopping the regular one, both may debit your account for a month or more.
- Switching units under 12 months old. Short-term gains on equity funds are taxed at 20%, which can wipe out years of expense savings.
- Forgetting nominations and mandates. Check that the nominee and bank mandate on the new SIP are correct.
- Choosing growth versus IDCW by accident. Pick the same option, growth or income distribution, that suits your goal.
Who Should Still Choose a Regular Plan
The default favours investors who are comfortable choosing funds themselves. Regular plans still make sense for some people. If you rely on a distributor to recommend schemes, review your portfolio and handle paperwork, and that advice keeps you invested through market falls, the extra 0.6 points or so may be money well spent.
The alternative is a direct plan plus a fee-only SEBI-registered investment adviser, who charges you directly rather than through commissions. Over large portfolios, that can cost less than regular-plan commissions, but it requires paying a visible fee. The key is to choose knowingly, which is what the new disclosure aims to ensure.
Your Action List Before and After November 1
- Check which plan each of your SIPs uses; the scheme name says “Direct” or “Regular”.
- Look up the expense ratios of both plans in the scheme factsheet to see your actual gap.
- If you do not use a distributor’s advice, start new SIPs in direct plans and consider stopping regular SIPs.
- For existing regular units, list holding periods and gains before deciding whether to switch.
- Use the ₹1.25 lakh yearly long-term capital gains exemption by spreading switches across financial years.
- Keep the same scheme when switching to avoid changing your portfolio by accident.
- Do not stop investing; continuing the SIP matters far more than the plan type.
Frequently Asked Questions
What is SEBI’s new mutual fund rule from November 1, 2026?
From November 1, 2026, direct plans will be the default option when you invest through an AMC’s website or app. You can still choose a regular plan, but you must be clearly told it has a higher expense ratio.
Will my existing SIP change to a direct plan automatically?
No. Existing SIPs and units in regular plans do not change automatically, and regular plans are not being discontinued, according to Business Standard. You must act yourself if you want to move.
What is the difference between direct and regular mutual fund plans?
Both invest in the same portfolio. Regular plans include a distributor commission and have a higher expense ratio; direct plans have no commission and a lower expense ratio. In examples cited by INDmoney, the gap is about 0.61 to 0.62 percentage points a year.
Is switching from regular to direct taxable?
Yes. A switch is treated as a redemption and a fresh purchase, so capital gains tax may apply. For equity funds, short-term gains are taxed at 20% and long-term gains above ₹1.25 lakh a year at 12.5%, plus surcharge and cess.
Is there an exit load on switching from regular to direct?
INDmoney reports that an AMFI communication dated April 9, 2025 asked AMCs to remove exit loads on regular-to-direct switches within the same scheme. Check your AMC’s current terms before switching.
How much can I save with a direct plan SIP?
On our assumptions, a ₹10,000 monthly SIP over 20 years with a 0.61 point lower expense ratio ends up about ₹5.83 lakh higher. The actual difference depends on returns, the expense gap and how long you invest.
Does the rule apply to apps like brokers or bank platforms?
The announcement covers AMC websites and apps. INDmoney notes that bank apps, distributor portals, brokers and independent platforms are not covered, so check which plan you are buying there.
Should I stop my regular plan SIP?
If you do not use a distributor’s advice, starting new instalments in the direct plan is usually cheaper, and stopping a SIP does not sell existing units. If you rely on your distributor’s guidance, the regular plan’s cost may be worth it.
The Short Version
From November 1, 2026, AMC websites and apps will select the direct plan by default, and investors choosing regular plans will be told they cost more. Existing SIPs and units do not change automatically. Direct plans skip the distributor commission, and in three large funds the expense gap is about 0.61 points a year, which on a ₹10,000 monthly SIP could mean about ₹5.8 lakh more after 20 years. New instalments can move to direct without tax, but switching old units counts as a sale. Choose knowingly, and keep your SIP running.
