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There are two ways to invest in a mutual fund. Either by investing directly with a fund house or by investing via an intermediary, direct or regular fund respectively. Both come with its set of advantages and disadvantages. So, if you wish to switch between direct and regular fund, this article tells you everything you need to know.

  1. Direct and regular mutual fund plans
  2. How to switch from regular to direct funds
  3. Why switch from regular to direct plans
  4. How to switch from direct to regular funds
  5. Advantages of switching from direct to regular plan
  6. Should you switch from one to another?
  7. Why invest with ClearTax

 

1. Direct plans and regular plans

To attain their respective financial objectives, mutual fund managers invest the money in stocks, bonds and other assets. Direct fund is when you buy a mutual fund directly from an asset management company. Regular fund is when you buy a mutual fund through an intermediary – distributor, agent or broker. Regular plans are for investors who don’t have the time, knowledge or understanding of the market. And direct plans are suitable for the more market savvy investors.

The table shows that both regular and direct plans have their own pros and cons. This will help you decide which one is for you. Here are some crucial differences between both these plans:

 

Features

Direct Plan

Regular Plan

Expense Ratio Lower Higher
Net Asset Value Higher Lower
Expected Returns Higher due to zero commission to the agent or distributor Lower due to deduction of commission to the intermediary
Investment Advice No Yes
Market Awareness Self Driven by the advisor
Portfolio Tracking Self By the agent
Documents & KYC To be submitted on your own Advisor will collect it

 

2. How to switch from regular to direct fund

a. Online

Login to your mutual fund account – either the AMC provides it or you can access it via agencies like CAMS or KARVY. Visit the the transaction page, where you can buy, change or redeem your fund. Select the ‘switch’ option and then click on the respective fund name. It will have a ‘Direct Plan’ option. It will take at least 4 working days to reflect the change.

b. Offline

If you are not familiar with the offline procedures, you can also switch in person. Just visit the nearest fund house branch and ask for a Switch Form. Enter the info like 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, distributors etc. In 2013, the Securities and Exchange Board of India (SEBI), introduced ‘Direct Plan’. It enabled investments 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 you will not have to pay commission. Usually, the fund house add your advisory charges to the expense ratio. So, this means more returns. If you are market-savvy investor with a keen interest in finance, direct funds can be for you. Many people, 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 this, you buy units through an adviser, broker, distributor or any other intermediary. This intermediary receives a commission from the AMC. Some investors who have already invested in direct plans might find it time-consuming to manage their portfolio. For such investors, switching from direct to regular plan makes sense.

With a nominal additional charge, a distributor or an agent can help them manage their investments. 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 direct plan, and the ‘Switch To’ option shows regular plan.

5. Advantages of switching from direct to regular plan

When you opt for a regular plan, you get reliable investment advises and recommendations. It is important to analyze the mutual fund performance and this keeps fluctuating, especially when you compare it with other similar products.

A reputed intermediary can guide you to the right fund for you on the basis of your current income, risk profile and investment goals. It doesn’t stop at making you invest either. They also do regular review for you and re-balance the profile by letting you hold or sell. Then, there are other value-added services like enabling your investment, portfolio mapping, and making the relevant account changes. These are the specialties of regular funds.

6. To switch or not

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 too. Therefore, decide judiciously and consider your overall financial goals before switching.

7. Why invest with ClearTax

Apart from saving you time and offering you convenience of investing from your home/office instantly, we have also done the research. We have hand-picked the best-performing funds from the top fund houses in India. Our research has not been influenced by the commission prospects as we do not charge our investors. Investing with ClearTax SAVE will save you a lot of confusion and hassle. Start investing.

 

 

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