How to move from regular to direct Mutual Fund plan

From 1 January 2013, all existing mutual fund investments have been grouped under the regular plans of mutual fund schemes. Investors have the option to move these to the direct plans offered by mutual funds.

A direct plan has a lower expense ratio since it does not include payments to distributors in the form of commissions. An investor who wants to shift has to place a switch request with the AMC through a transaction slip or via a written request.

LOAD

For investments made through a distributor code, a one-time exit load is levied on the switch. The ones without such a code or as a direct application move to the direct plan without any exit load.

PROCESSING

An investor who has registered for a systematic investment plan (SIP) or systematic transfer plan (STP) through a distributor can make a written request to the AMC to process the future instalments of SIP under the direct plan. Such an instruction may take 15-20 days to be processed.

TAXATION

Since a switch transaction amounts to simultaneous redemption and purchase, it entails tax consequences applicable to redemption from a scheme that could be in the form of short-term or long-term capital gains depending on the period of holding.

POINTS TO NOTE

While placing the redemption request, the investors who hold investments under the direct, as well as regular plans of a scheme, need to mention the specific plan from which they want to make the redemption.

An investor who is registered for a systematic investment plan without mentioning the distributor code will automatically have the future investments processed under the direct plan.

(The content on this page is courtesy Centre for Investment Education and Learning (CIEL). Contributions by Sunita Abraham, Girija Gadre and Arti Bhargava.)