SEBI Makes Direct Mutual Funds Default From 1 November, Review IPO Rules And Expand AI-Led Surveillance

The Securities and Exchange Board of India (SEBI) will make direct mutual fund plans the default option on asset management companies' (AMCs) digital platforms from 1 November, Chairman Tuhin Kanta Pandey announced at an event on 28 October. Investors opting for regular plans will also be informed about their higher expense ratios.

The change puts investment costs at the centre of mutual fund selection. Direct and regular plans invest in the same portfolio and are managed by the same fund manager, but their expenses differ. Direct plans do not include distributor commissions, while regular plans carry distribution-related costs that affect the net asset value (NAV) and returns received by investors.

The rule does not discontinue regular plans or automatically convert existing investments. Its focus is on making the cost difference more visible when investors select a plan.

Direct vs Regular Mutual Funds: The Long-Term Cost Difference

For investors, the choice between direct and regular mutual fund plans can affect long-term wealth. Take a ₹10,000 monthly SIP. At an annual return of 12% before base expenses, the direct plan could build a corpus of ₹84.53 lakh over 20 years. The regular plan could reach ₹75.06 lakh instead. The difference stands at ₹9.47 lakh. Lower expenses, even within the same portfolio, can make a considerable difference when allowed to accumulate over two decades.

Note: The figures cited are hypothetical illustrations based on assumed returns and differences in base expense ratios. Actual mutual fund returns may vary depending on market performance, expenses and other factors.

SEBI Expands IPO Review And Capital Market Reforms

Pandey said SEBI would review the frameworks governing main-board IPOs, follow-on public offers (FPOs), small and medium enterprise (SME) IPOs and the Innovators Growth Platform to improve access to public capital for emerging businesses.

The regulator's wider agenda covers simpler regulations, deeper capital markets, stronger governance and investor protection, and technology-led supervision. Key initiatives include:

• Reviewing listing and disclosure requirements, alongside net settlement for mutual fund transactions.

• Exploring wider access to regulated online corporate bond platforms beyond major cities.

• Strengthening monitoring of how companies deploy IPO proceeds.

• Working with the Reserve Bank of India to streamline know-your-customer (KYC) certification for foreign portfolio investors (FPIs).

SEBI is also examining changes to the regulatory framework for environmental, social and governance (ESG) rating providers and reviewing rules governing debenture trustees.

Artificial Intelligence To Take a Bigger Role In Market Surveillance

SEBI is extending its Radar tool, which screens mutual fund and distributor advertisements, to other market intermediaries. It is also developing artificial intelligence (AI) systems to analyse compliance reports and monitor disclosures that could reveal early signs of corporate debt defaults.

Pandey stressed that institutions using AI must remain accountable for their decisions and protect investor data.

Investor awareness remains another challenge. SEBI's survey found that 63% of households knew of at least one securities market product, while only around 9.5% participated in the markets. Its Project Jagruk campaign, launched on 5 October, operates in English, Hindi and 11 regional languages.

The regulator has also escalated more than 2.2 lakh instances of misleading online content to social media platforms for removal, with its in-house AI tool Sudarshan accounting for over 40% of those escalations.

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