Greeting To Our Readers!
Mutual fund schemes come in two variants, Regular Plan and Direct Plan. Each variant has its own set of advantages and disadvantages, however, if you ask an expert, which plans to go with, his reply to you will be Regular Plan Of Mutual Funds!
Let us see why experts prefer regular plans over direct plans and do mutual funds house allow an investor to switch between the two variants of mutual funds that are regular plan and direct plan!
Direct Plan And Regular Plan In Mutual Funds!
A Regular Plan in Mutual Funds is an investment plan that an investor purchases through a mutual fund broker, distributor, or advisor, in return the AMC (Asset Management Company) or the Fund House, pays a kind of commission to the brokers, distributor or advisors, for every new investor that they introduce to the investment plans in the AMC’s.
A Direct Plan in Mutual Funds is an investment plan that an investor purchases directly through the AMC, and doesn’t involve middlemen like mutual fund brokers, or advisors. No role of brokers and advisors makes the investors free from commission or distribution fees, which in turn lowers the expense ratio on their investment plan.
Can An Investor Switch Between The funds?
Yes, as per SEBI, investors can go switching between the plans, either they can switch from direct plan to regular plan of mutual funds schemes, or they can switch from regular plan to direct plan of mutual fund schemes.
How To Switch From Regular Plan To Direct Plan Of Mutual Fund Schemes?
Well, investors can switch between funds from both online mode and offline mode.
Offline Mode:
- Visit the nearest branch of the concerned AMC that manages the fund you have invested in.
- Ask them for a Switch Form.
- Fill up the form with necessary detail like your folio number, PAN number, name of the fund and plan you have invested in, and then the name and plan of the fund you want to switch in.
- Submit the form and you are done with your work.
- After that, the AMC will process your request.
- Once they process it, they will send you an updated account statement. You can even get this done via your intermediary.
Online Mode:
- Login to your mutual fund account – either the AMC provides it, or you can access it via agencies like CAMS or KARVY.
- Visit the transaction page, where you can buy, change, or redeem your fund units.
- Select the ‘switch’ option and then click on the respective fund name.
- It will have a ‘Direct Plan’ option; click on it and follow the steps displayed. It will take about four working days to reflect the change.
Following the similar process to above, you can switch from a direct plan of mutual fund scheme to a regular plan of mutual fund scheme.
Is There Any Expense Associated With The Switch?
Yes, there are multiple expenses associated with the switch option, reason, switching between funds or plans is taken as redemption from the existing fund and then reinvestment to the new fund.
Capital Gains Tax…
Since switching between two variant plans of mutual funds is taken as redemption from one fund and new investment to another fund, the switch can attract tax on capital gains. The applicable taxes can also vary depending on the type of capital gains i.e. long-term or short-term capital gains.
Exit Load…
If your existing fund is associated with any kind of exit load, then your switch from an existing fund to a new fund will attract certain exit load charges.
Hence, it is advised to ensure that you are aware of the exit loads applicable to your investments before making a switch.
If you are switching from a regular plan to a direct plan of ELSS mutual funds, make sure that you do it after the lock-in period of your existing ELSS fund has got over. It is also to be kept in mind that the lock-in period on the direct mutual fund plan will restart as the switch will be considered a new investment.
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For any kind of query you can contact us at Shri Ashutosh Securities Pvt Ltd., we are here to help you in any way possible.
Happy Investing!
(Mutual Fund investments are subject to market risk Illustrations are for example only, there is no guarantee of returns. Past performance is not an indicator/guarantee to future returns).