Smart things to know: Switching to direct plans in mutual funds

1 - Mutual funds now offer the regular and direct options for their schemes. the direct plan has a lower expense ratio compared with the regular plan, as distribution expenses are excluded.

2 - The returns for investors, especially over the long term, are likely to be higher in the case of direct plans due to the lower expense ratio. investors can move their existing investments to the direct plans by submitting a switch request.

3 - Such switches, from one plan to another within a scheme, are allowed and treated as redemption from one plan and investment in the other.

4 - The switching of units from one plan to another may attract capital gains tax and exit loads, if applicable.

5 - Systematic investments made under a distributor code will continue unless investors give a switch request to transfer the same to the direct plan. such an instruction may take 15-20 days to be processed.

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