Every Mutual fund Schemes come with Two Options of Investing Money in the Scheme they are Direct & Regular plans. Whether you opt for the direct or regular plan you get the same fund manager, same fund house who invests in the same securities. Then the question arises why you should switch from Regular to Direct Plan & How to Switch from Regular To Direct Mutual Funds?
Let us first understand the difference between direct & regular plans. In Regular Plans, your AMC/Fund House pays a commission to your broker as a fee for making you invest in that fund. While in direct plans there is no broker involved & you have to invest by yourself, so no commission is paid & that amount is added to your Investment Corpus which increases your overall returns. Let us understand How to Switch from Regular To Direct Mutual Funds
Why Switch From Regular to Direct Plan?
Whenever you are Investing your first priority should be to generate Maximum Return on your Investment. So to Maximise this Priority you should Always invest in Direct Plans due to higher Returns & Lower Expense Ratio in the Same Scheme. But when you have made Originally Investment in Regular Plans it makes sense to switch from Regular to Direct Plan.
How to switch from Regular to Direct Plan of a Mutual Fund Scheme?
There are 2 Methods of switching from regular to direct plan, they are as follows:-
A) Online Method
Login to your Mutual Fund Account with your Fund Website, Fund Mobile Application or you can access it via mCams or Karvy. Visit the page where you access all transactions & look for “switch” option & Click on respective fund name which has a direct plan written to it, Complete the procedure & your funds will be transferred from Regular to Direct Plan.
B) Offline Method
If you are not comfortable with the online procedure you can visit your nearest fund house & fill in the offline form for switching funds. Enter Required Information Such as Folio Number, Scheme Name in which fund is to be transferred. Once processed you will get your entire corpus transferred from Regular to Direct plan.
Note:- If you want to Switch from Direct to Regular Plans the Procedure is exact same as mentioned above.
Benefits of Switching from Regular To Direct Mutual Funds.
1) Better Returns on Investments
2) Low Expense Ratio
3) Requires More Research Analysis from your end, which decreases dependence on Distributor for Fund Selection
4) Increase Investment Option Types like Online Investment, Investment through Mobile App, 3rd Party Apps, Offline Investment with the Fund House etc. Direct Plans Increase Convenience of the Investor.
5) If your investment horizon is long term (say more than 10 years) investing in direct plans offer much better chances of wealth creation.
Some Points to be Considered Before Switching Plans
1) When you shift from regular to direct plan, it is considered as a sale of mutual fund units under the Income Tax Act 1961 and attracts short term/long term capital gain
For Equity Funds – If units were held for more than 1-year long term, otherwise short term. Short Term Tax @15% of Capital Gain & Long Term Tax @10%* of Capital Gain.
For Debt Funds – If Units were held for more than 3 years Long term, otherwise short term. Short Term Tax as per Investor’s Slab Rate & Long Term Tax @20% of Capital Gain.
Consult your tax advisor before switching funds would be a good approach for better tax treatment.
*Long-term capital gains on equity mutual funds are exempt up to Rs.1 lakh per annum.
2) When you are investing through SIP’s & you switch funds all your existing investments get transferred to direct plans but your future investments would be continued to be invested in regular plans. If you want your future investments in direct plans cancel your existing SIP & Start a new one in direct plans of the same scheme.
3) Exit Load is the charge of redeeming mutual fund prior to its scheme requirements. Normally Equity Mutual funds have an exit load of 1% if investments are redeemed before completion of 1 year of investing. If you switch funds before completion of 1 Year of Investing Exit load as applicable would be levied on such switch.
4) If you have invested in ELSS (Tax Saving Scheme) there is a 3 year lock-in period for such investments and you cannot switch funds before completion of 3 Years.
Thank You very much for Reading hope you were able to understand How to Switch from Regular To Direct Mutual Funds. If you have any question do let us know in the comments section below and Thank You very Much for Reading this Article.
Bonus Tip – If you want to Invest in Shares you need a Demat Account. You can open a Demat Account with Upstox India’s Best Discount Broker, you do it for free by Clicking Here. Upstox is a tech-first low-cost broking firm in India providing trading opportunities at unbeatable prices. Upstox offers free trading in Equity & flat Rs.20 per order for Intraday and F&O.
If you want a Detailed Step by Step article on How to Open a Demat Account with Upstox – Click Here