1. Direct plans and Regular Plans
To attain their respective financial objectives, mutual fund managers invest in stocks, bonds and other assets. The direct funds are those in which you directly invest with an asset management company. Also, the Net Asset Value of direct plans are always higher than that of regular funds. The regular funds are those mutual funds in which you invest through an intermediary – distributor, agent, or broker. Regular funds are for investors who don’t have the time, knowledge, or understanding of the market, while direct plans are suitable for the more market-savvy investors.
The table shows that both regular and direct plans have their pros and cons. This will help you decide which one is for you. Here are some crucial differences between both these plans:
2. How to Switch From Regular to Direct Fund?
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 as displayed. It will take about four working days to reflect the change.
If you are not comfortable with the online switching procedure, then you can switch funds offline. You need to visit the nearest branch of the fund house and fill and submit a switch form. Enter the information such as the Folio Number and the fund name. Once they process it, they will send you an updated account statement. You can even get this done via your intermediary.
3. Why Switch From Regular to Direct Plan?
Traditionally, investors could purchase mutual funds through independent financial advisors, banks, and distributors. In 2013, the Securities and Exchange Board of India (SEBI), introduced ‘Direct Plan’. It has enabled investors to make independent investment choices. Hence, this step is regarded as a cornerstone reform in the mutual fund sector.
One main attraction of direct funds is that investors will not have to pay commission. In case of regular funds, the fund house adds your advisory charges to the expense ratio.If you are a market-savvy investor with a keen interest in finance, then direct funds can be the right choice for you. Many individuals, thus, rely on external agents for mutual fund investments only for the sake of convenience.
4. How to Switch From Direct to Regular Plan?
In the case of direct funds, you buy fund units directly from a fund house. Some investors who have invested in direct plans might find it difficult or time-consuming to manage their portfolio. For such investors, switching from direct to regular funds makes sense.
With a nominal additional charge, a distributor or an agent can help investors manage their investments effectively. The procedure to switch from a direct plan to a regular plan is the same as above. However, there is a slight difference here. The ‘Switch From’ option changes to the direct plan and the ‘Switch To’ option shows a regular plan.
5. Advantages of Switching From Direct to Regular Plan
If you opt to invest in a regular plan, then you get reliable investment advises and recommendations. It is essential to analyse the mutual fund performance and this keeps fluctuating, especially when you compare it with other similar products. One main advantage of investing in a regular plan is that you need to do your documentation and KYC only once.
An intermediary can guide you to the right fund based on your current income, risk profile, and investment goals. Their services don’t stop at just at making you invest. They also do a regular review of your portfolio and re-balance the same if necessary.
6. Should You Switch From One to Another?
Regardless of whether you are switching from a regular plan to a direct plan or vice versa, you must remember that switching of funds means selling your current units and purchasing units under the new scheme. Exit loads, if any, will be applicable and tax implications must be considered. Therefore, be wise when making a switch decision and consider your overall financial goals before making any decision.
7. Why Invest with ClearTax?
Apart from saving your time and making it convenient to invest from wherever you are, the experts at ClearTax have researched to pick the best performing funds from the top fund houses in India. ClearTax has made investments hassle-free and paperless.