How to Switch Mutual Fund Investments From Regular Plan to Direct Plan?

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Switch Mutual Fund Investments From Regular Plan to Direct Plan
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In this article you will find out how to switch Mutual Fund investments from regular plan to direct plan? You will find out also why and what is the wise situation to switch the MF investments from regular plan to direct plan?

Securities and Exchange Board of India (SEBI) is the regulator of stock market. It launched a scheme in 2013 which allows to launch plans in Mutual Funds. Mutual Fund scheme is of two types – one is the direct plan and the other one is regular plan. Regular plan is the plan which accounts costs like commission cost that is payed to the broker. While direct plan is the one which is devoid of all such type of costs.

One of the major reason to switch mutual fund investments from regular plan to direct plan is to save the commission costs. However with this switch you can marginally increase your returns. So here you will find out how and why it is wise to switch mutual fund investments from regular plan to direct plan.

Why to Switch Mutual Fund Investments From Regular Plan to Direct Plan?

Direct plans are directly bought from the fund house hence there is no involvement of distributors. The commission that would have been given to agent is given to the investor in the form of lower expense ratio. The return that one receives from direct plan is 2 times higher than that of regular plan. Rest everything is same in both the cases.

One thing that one should keep in mind while switching from regular plan to direct plan is that he/she should have the confidence that they can handle their funds on their own.

Steps to Switch From Regular Plan to Direct Plan:

A. If you have registration for online transaction from an individual AMC’s-

1. Simply login to your Mutual Fund account. Your account could either provide you facility for online transaction which is provided by individual MF house. Or it might also provide you direct online MF platform which is provided by KARVY, CAMS, MF Utility etc.

2. Then visit your transaction page from where you are allowed to redeem/switch/purchase funds. There you will find “switch from” option from where you can actually switch Mutual fund investment from regular plan to direct plan.

3. Carefully select the fund name in the “switch to” option. Also make sure that the name of the fund is “Direct plan” and it will be written on the suffix.

4. Lastly you can check your account after 4 to 5 hours to see whether you account has been switched or not.

B. If you have offline transaction form an individual AMC’s-

1. Visit your mutual fund office from where you have taken mutual fund scheme.

2. Simply ask them for the switch form.

3. Fill all the asked information in that form along with the folio number and the right fund name.

4. Lastly just sign and then submit the form in the office.

5. Once the switch process has been processed then you will receive email on your registered email address.

Also Read>>> 11 Shocking Mutual Funds Myths That Stops You From Investing

C. Registered from a Broker/Demat office/Distributor-

In this case switching won’t be that easy as that was in the previous cases. Since you have registration from ICICI Direct, Funds India, Birla – Myuniverse etc. Or even if you have held your mutual fund in the demat form then their is lengthy process for switching between the plans. Initally you will have to get registration for online transaction from an individual AMC’s. Or if you want you can even have offline transaction form an individual AMC’s. Then follow the steps given above for the respective case.

What is the Best Time to Switch?

You should switch only when you are looking for long term investment in mutual funds. With the term long term investment I mean investment done for more than 5 years. Even if you switch your fund value to the same fund it will be considered as selling of old funds and buying of new funds and the charges will be charged accordingly. Basically there are majorly two costs that are taken into account while switching.

a. Exit Load

Exit load is basically the cost that is charged when the fund is redeemed prior to its ideal mutual fund horizon. In simple words exit load is the cost that is demanded by the AMC while redeeming or transferring or switching an investment scheme. The exit load amount is held by the Asset Management Company (AMC).

For debt-orientation funds, the exit load range varies between 0 to 2%. This range varies depending upon the type of the fund. In order to avoid all such charges you must ensure that the fund must not have any exit load.

For equity-orientation fund, it is charged as 1% of the total redemption value. In case if you redeemed the fund before one year of your investment. While after one year their is no exit load charged by the company.

b. Taxations

When you will switch Mutual Fund investments from regular plan to direct plan then you will have to pay some taxes. In case of equity funds, if you will switch after 1 year then your holdings will be automatically tax free. Now if you switch your plans before 1 year then you will have to pay tax of 15%. However in case of debt funds, if plans are switched before 3 years then you will have to pay tax according to the tax slab. While if you will switch after 3 years then your earnings will be taxed at 20%.

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