SEBI's New Mutual Fund Rule From November 1: What Changes for Your SIP?

Two people can invest ₹10,000 a month in the same mutual fund portfolio and finish with different amounts. The difference can come from the recurring cost of the plan selected.

That cost difference is behind SEBI’s announcement that direct plans will become the default on asset management companies’ digital platforms from November 1, 2026. Investors choosing regular plans must be informed about their higher expense ratio.

For existing SIP investors, the announcement does not provide for automatic conversion. Choosing a plan for fresh money and switching existing investments are separate decisions.

What Is SEBI Changing for Mutual Funds From November 1?

SEBI Chairman Tuhin Kanta Pandey announced the November 1 starting date in his October 28 address at NDTV Profit Ignite. The speech, published on SEBI’s website, specifically identifies digital platforms of AMCs, meaning the websites and apps operated by mutual fund houses.

Direct plans will be the starting selection, while investors choosing regular plans must be told about their higher expense ratio. Default does not mean mandatory: the announcement expressly allows investors to choose regular plans.

This does not establish the same default for every bank app, distributor portal, broker or independent investment platform.

As of October 30, we verified the speech but could not independently locate a separate public circular detailing this change. The disclosure format, treatment of distributor-linked journeys and any special handling of existing SIP instructions remain unverified. Check the AMC’s implementation notice before assuming a particular consent process is required.

Direct vs Regular Mutual Funds: What Is the Real Difference?

Direct and regular plans of the same scheme share its portfolio, investment objective and fund manager. Choosing direct does not change the stocks or bonds your money is exposed to.

The main difference is distribution cost. A regular plan pays distributor commission through the fund’s expenses. A direct plan excludes that commission, giving it a lower expense ratio.

The total expense ratio, or TER, expresses the scheme’s total expenses as an annual percentage of its assets. Expenses are reflected in the fund’s daily net asset value, or NAV, which is the value of one unit. They are not a separate annual bill deducted from your bank account.

Think of two identical water tanks receiving the same inflow, with different amounts draining away as running costs. More water remains with the smaller drain. Similarly, lower expenses leave more money invested, including during market falls.

Over time, this creates different NAVs and returns. A higher direct-plan NAV does not mean that plan is more expensive to invest in: the same rupee amount simply buys fewer units, each worth more.

Here are actual annualised TERs for three schemes offering direct and regular growth options:

Sources: HDFC and PPFAS October 2026 TER reports; SBI current-year TER disclosure. As of October 28, 2026, the latest common date verified. Full “Total TER” figures include disclosed levies and trading costs, rather than base expenses alone. TERs can change.

A 0.61 percentage-point gap represents approximately ₹610 annually on an unchanged ₹1 lakh balance. Actual rupee costs vary with the money invested and daily portfolio values.

Use the table to compare two plans within the same scheme. It does not establish which of these three schemes is the best investment: their mandates, risks and portfolios differ.

How Much Could a Direct Plan Add to a ₹10,000 Monthly SIP?

A systematic investment plan, or SIP, invests a fixed amount regularly. Each instalment stays invested for a different length of time.

Consider a hypothetical ₹10,000 invested at each month-end. Assume the portfolio earns 12% annually before expenses, with constant TERs of 0.75% for direct and 1.36% for regular, matching the HDFC comparison above.

Subtract annual costs once to obtain approximate net annual returns of 11.25% and 10.64%. Convert each to its equivalent monthly compounded rate, rather than dividing by 12.

Source: INDmoney calculations using the stated assumptions. Monthly rate = (1 + net annual return)^(1/12) − 1. Corpus = ₹10,000 × [(1 + monthly rate)^(12 × years) − 1] ÷ monthly rate. Figures rounded independently to two decimal places in lakh; unrounded results used for differences.

The gap grows because money retained through lower expenses can itself earn returns. The ₹5.83 lakh includes that compounding effect, rather than simply totalling commissions avoided.

These are hypothetical outcomes, not historical fund returns or promised savings. Annual return minus TER is a simplified approximation of daily expense accrual. The illustration assumes smooth returns and unchanged costs, and excludes investor taxes, transaction levies, platform charges and separate advisory fees. Actual outcomes will differ.

Published NAV-based fund returns already reflect scheme expenses. Subtracting TER again from those historical returns would count the cost twice.

Will Your Existing Mutual Fund SIP Change Automatically?

The published announcement contains no instruction automatically converting existing regular-plan units or SIP registrations. A website’s starting selection does not establish a change to investments already registered.

Sources: SEBI’s October 28 speech; PPFAS plan FAQs; HDFC Statement of Additional Information updated through September 30, 2026. No conversion instruction appears in the verified announcement; detailed November 1 operational instructions were not independently located.

Subject to the AMC’s process, you can stop a regular-plan SIP and register a direct-plan SIP while leaving old units invested. Stopping future instalments does not itself redeem units or realise their gains. Confirm processing dates to avoid overlapping deductions or missed instalments.

Should You Switch From Regular to Direct Mutual Funds?

Lower future expenses are only part of the calculation. A voluntary regular-to-direct switch is treated as redemption of regular units followed by a fresh purchase of direct units. Gains can become taxable even though no money reaches your bank account.

For a resident individual’s qualifying equity-oriented fund units, gains on units held for up to 12 months generally attract 20% tax. For units held longer, eligible aggregate long-term gains above ₹1.25 lakh in the year generally attract 12.5%. Applicable surcharge and 4% cess are additional. Debt and other fund categories can have different treatment.

Each SIP instalment has its own purchase date. A long-running SIP can therefore contain both short-term and long-term units. The direct units acquired through a switch start a fresh tax holding period; units left untouched retain their existing purchase history.

Exit-load guidance changed in April 2025. AMFI’s April 9 communication required AMCs to discontinue exit loads for regular-to-direct switches within the same scheme. HDFC’s implementing addendum applied from April 21, 2025; Tata documents specify April 23. Current PPFAS FAQs also confirm no exit load on such inter-plan switches.

Saying every switch within a fund’s normal exit-load period attracts a load would therefore be outdated. Check current AMC documents for your units and any later redemption: HDFC, for example, measures the subsequent exit-load period from the initial purchase date. This differs from the fresh tax holding period. Tax and applicable transaction levies remain separate from exit loads.

Self-directed investors comfortable choosing funds, reviewing risk and maintaining asset allocation can benefit from lower expenses. Those needing help should assess the actual service received against its cost. A direct plan retains the scheme’s investment risks.

A mutual fund distributor is registered with AMFI and typically receives AMC commissions through regular plans. A SEBI-registered investment adviser charges the client and, where available, advises direct, non-commission products. Professional guidance is therefore compatible with direct plans; include the adviser’s fee when comparing overall costs.

What Should Mutual Fund Investors Check Before November 1?

Start with your statement and registered SIP details. Look for “Direct” or “Regular”; check “Growth” or “IDCW” separately because the payout option is a different choice.

Compare both plans’ expense ratios (TERs) on the same date, then review your unrealised gains, purchase dates and any lock-in before switching from a regular to a direct plan. For fresh investments, inspect the final confirmation screen even when a default has been supplied.

Our take: November 1 is a reason to review what you pay, not a deadline to switch. Evaluate future SIP contributions and accumulated holdings separately. The useful outcome is a suitable portfolio with understood costs and the right level of guidance.