Article

How to Switch Your Existing Investment to Direct Plan in Mutual Funds

January 09 , 2013

From 1 January 2013 all mutual fund schemes have a new Direct plan for investment. This applies to existing schemes as well as new funds being offered. Investment in direct plans is routed to the fund directly without a distributor, which means lower charges on you. Obviously, lower charges in turn mean higher returns-more the longer you are invested!

In order to migrate to direct plan you have to submit a written request to the fund. You need to indicate 'Direct' in the plan name and also leave ARN column for distributor code blank or indicate as Direct. Even if ARN code is entered in the column if you indicate plan name as Direct it will be considered as direct plan. Here we will look at some common issues one might come across while switching from existing plan to direct plan of a mutual fund scheme.

Switching existing investment in mutual fund to direct plan

If you have accumulated units in a mutual fund scheme through lumpsum investment or SIP you can transfer them to direct plan by submitting a written request to the mutual fund. Even if they were made without a distributor they will continue under regular/existing plan unless a written request is submitted.

This is true for dividend reinvestment option as well. Unless you have submitted a request, dividends under a regular/existing plan will be reinvested in the same plan even if investment was made without a distributor.

Switching current SIP/STP in mutual fund to direct plan

Your future installments in regular/existing plan through SIP/STP made without a distributor will automatically be converted to direct plan. For making future SIP/STP installments in direct plan where you had opted for a distributor earlier you need submit a switching request at least 15 days prior to your SIP/STP date.

Exit load while switching between direct plan and regular/existing plan

If the investment (lumpsum or SIP) was initially made without a distributor no exit load will be charged. However if the investment was made via a distributor exit load will be applicable while switching. Once exit load is charged it will not be charged even if you switch the scheme again before the exit load period is over.

Tax payable while switching mutual fund plans

Converting from regular/existing plan to direct plan will be considered as redeeming and exiting. This means switching will attract capital gains tax. Depending on whether it is an equity oriented fund or debt fund the deal will involve short term or long term capital gains tax. TDS will be applicable for NRIs while conversion from regular plan to direct plan.

Considering higher returns on direct plans you can switch over after you take into account exit load and capital gains tax applicable.


Get direction on your financial life before its too late

Click here to know more

Article Ready Reckoner Concept Procedure