Check latest update on Mutual Funds from SEBI Chairman Tuhin Kanta Pandey; to be implemented from Nov 1 | What he said

Check latest update on Mutual Funds from SEBI Chairman Tuhin Kanta Pandey; to be implemented from Nov 1 | What he said(REUTERS)AI Quick ReadThe Securities and Exchange Board of India (SEBI) will make direct mutual fund plans the default option on asset management companies’ (AMCs) digital platforms from November 1, 2026, markets regulator chairman Tuhin Kanta Pandey said at NDTV Profit Ignite’s Diwali event.

Meanwhile, investors opting for regular plans will have to be informed about their higher expense ratios, helping them understand the additional costs associated with investing through a distributor, Pandey added.

Under the new rule, direct mutual fund plans will be selected by default unless investors choose otherwise. Investors can still opt for regular plans, but they must be informed that these plans carry higher expense ratios.

Regular and direct mutual fund plans invest in the same underlying securities, have the same investment objective and are managed by the same fund manager.

The only difference is that regular plans are distributed through intermediaries such as agents or financial distributors, while direct plans are purchased directly from the mutual fund or asset management company without a distributor.

This makes the expense ratio of regular plans higher than that of direct plans, as distributors receive commissions that are ultimately borne by investors through the fund's expenses. This difference may appear small, but even a gap of 1% can have a major impact on returns over a long investment horizon.

The expense ratio, which is the annual fee charged by a mutual fund to manage an investor's money and cover operational costs, is expressed as a percentage of the investor's total investment.

But regular plans also come with their own set of benefits. One of them being the service provided by a distributor, which includes help with scheme selection, transactions, documentation, operational support and ongoing handholding. This can prove to be helpful for a first-time or less experienced investor.

Announcing the new rule, Pandey further stressed that easier access to investments must go hand in hand with greater awareness. "Easy access does not guarantee understanding," he was quoted as saying by NDTV.

He 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. "Investing must be a choice made with open eyes, knowing what you buy, what it costs, and what you risk," he said.

Pandey also announced during the event that the markets regulator will review the frameworks that are currently governing main-board initial public offerings (IPOs) and small and medium enterprise (SME) IPOs.

Apart from that, Pandey said SEBI would also assess whether Indian market participants face higher compliance costs than those in other emerging and developed economies. The regulator will soon release a consultation paper proposing changes to some of its existing requirements, he added.

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