How to Transfer/Convert Regular Mutual Fund to Direct Plan?

How to Transfer/Convert Regular Mutual Fund to Direct Plan?

The stock market regulator SEBI had made mutual fund companies launch their direct plans for all schemes in the year 2013. With this, we have two kinds of mutual fund plans, the Regular plan that includes commission payment for brokers and the direct plan that doesn’t involve such costs. Therefore one of the main reasons to transfer the regular mutual fund to a direct plan is saving the commission amount and also increasing the returns marginally. We shall explain to you not just how but also why making such a switch can be a wise decision.

What Are Direct And Regular Mutual Fund Plans?

Direct plans of the mutual funds are the ones that are directly sold by the company itself. You can go through several online platforms for providing information by which you can directly get connected with the AMC.

A regular plan is where one invests in the scheme with the assistance of an intermediate. With regular plan investments, the investor has to pain the commission to fund a house that eventually pays the needed amount to that intermediary.

What Is The Main Difference Between The Two?

The key factor that differentiates the two plans is with a regular plan; the investor has to incur more expense. Because of this, the return that one earns over direct plans is higher when compared with regular plans. This happens because the investment with a direct plan, the commission gets added to the investment balance. Eventually, the expense ratio gets reduced and the long-term returns increase.

How Can This Be Beneficial For You?

Before the time we could benefit from the online platforms for investments, people were mostly dependent on the distributors and other channels for investing in mutual funds. When you invest in mutual funds with these channels, you end up getting regular plans.

This charges a higher expense ratio for the same schemes that you get with direct plans. When you invest with direct plans, you are investing in a plan that you own. This does need a little bit of research from your end as well, but you will have a lesser expense ratio too.

 When Should You Make A Switch From Regular To Direct Mutual Fund Plan?

 You should be making the transfer only when the investments that you have made are for the long-term. This means at least over five years and the amount should be high as well.

Exit Load: This is usually 1 percent with equity-oriented funds. And only when redeemed before the duration of one year of investing and with no exit load afterward.

For debt-oriented funds, the exit load can range from 0 to 2 percent depending on the fund type. Thus, for avoiding such costs, one should ensure that this fund doesn’t have an exit load over the funds until there isn’t an exit load applicable.

Taxation: With switching the funds, one has to have tax implications that are as par the regular taxation capital gain. This means, that in cases of the equity funds, the investment when switched after a year of holding investments remains tax-free and when done prior, the gain has to be taxed at about 15 percent.

 How to Transfer/ Convert Regular Mutual Fund to Direct Plan?

Before one chooses to convert the regular mutual fund to a direct plan, you should understand that most funds are treated as redemption for a regular plan. The procedure or the expenses that need to be incurred with the switch will be the same for the ones that were incurred when the mutual fund redemption was done.

Online:

  • The first step is to log in to the personal mutual fund account that you have.
  • Then go to the transaction page. Here you can change, redeem or buy fund units.
  • Click on the “Switch” option. Then click over a specific fund name.
  • You will see an option called “Direct Plan”. Click over it and then follow the steps that display.

Remember that it can take 4 days for reflecting the changes into account.

Offline:

In case you aren’t comfortable with such changes online, you can get the work done offline as well. For this, visit the fund house branch nearest to you and submit a filled switch form. Enter needed information like fund name and folio number.

Why Switch From Regular to Direct Plan?

Investors traditionally could buy mutual funds through independent banks, advisors, and distributors. Then in the year, 2013 SEBI came up with an interesting direct plan. This has enabled the investors to make several choices for independent investment.

Therefore this step had reformed the entire mutual fund sector. One of the key features of a direct plan is that investors don’t need to pay a commission. Then when we speak of regular funds, the advisory can charge for the expense ratio. In case you are an investor that’s market savvy and have a close interest in the field of finance, direct plans can be a wise choice for you. Many people, therefore, depend on external agents for such investments just for convenience’s sake.

Final Thoughts:

When you switch from a regular to a direct plan, it makes sense for the investor for several reasons. You will also be able to invest and track yourself and aren’t dependent on the distributors. Also, you must communicate with the advisor when you have made considerable investments in the long term.