Mumbai: If you buy mutual funds on an app, the option in front of you changes on Sunday. From November 1, direct plans will be the default on asset management companies' digital platforms, SEBI chairman Tuhin Kanta Pandey said.
What actually differs? Direct and regular plans invest in the same scheme and hold the same portfolio. The gap is distribution cost. A direct plan is bought without a distributor earning a commission, so its expense ratio is lower. A regular plan carries the distributor's commission inside its expenses.
Pandey's second point matters as much as the first: anyone choosing a regular plan must be told, up front, that its expense ratio is higher. The choice is not being taken away. It is being made informed.
"Making investing easier is only half the job," Pandey said. "Easy access does not guarantee understanding." Investors, he said, must know what they are buying, what it costs and what risk they are taking.
A direct plan is not automatically right for everyone. Someone who needs help picking funds, planning investments or managing a portfolio may value professional advice — provided they understand what that advice costs and whether it suits them.
On the same occasion SEBI outlined its wider agenda. It will review the frameworks for main-board IPOs, follow-on public offers, SME IPOs and the Innovators Growth Platform, with an eye on access to public capital for younger companies. It is working with the RBI to harmonise SWIFT-based KYC certification for foreign portfolio investor bank accounts, and aims to cut FPI onboarding to five days. It is also consulting corporate bond issuers, looking at expanding regulated online bond platforms beyond the big cities, and tightening monitoring of how companies use IPO proceeds.
By SEBI's own numbers, India's equity market capitalisation is around ₹470 lakh crore, outstanding corporate bonds about ₹61 lakh crore and mutual fund assets roughly ₹83 lakh crore, with more than 15 crore unique investors. Yet its investor survey found 63% of households aware of at least one securities market product and only about 9.5% actually participating.