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Things to Consider While Switching to Direct Mutual Funds

Updated on: Jan 13th, 2022


5 min read

Planning to switch your existing regular mutual fund portfolio to a direct mutual fund plan? This article covers everything you need to know about switching your funds.

How to Switch to Direct Mutual Funds?

You can choose to switch to direct mutual funds either online or in person. The online method is more preferred as it is comparatively easier and only takes a few minutes to make the switch.

Online Mode:

There are three online options where you can perform the switch:

  • Direct Mutual Fund Platforms
  • Asset Management Company (AMC) Website
  • Registrar & Transfer Agent (RTA) Website
  1. Direct Mutual Fund Platform There are many direct mutual funds platforms that allow you to make the switch easily. ClearTax is one such platform recognised for its quick and seamless process. Not only will you be offered a wide array of direct mutual fund plans to choose from, but the platform will also direct your request for the switch to the Registrar & Transfer Agent (RTA). This is also one of the most preferred methods among investors to switch to direct mutual funds.
  2. RTA Website You can also consider visiting the official RTA websites to perform the switch. You will be required to fill up a form to request for the switch in such cases. You are also provided with the option to switch your existing funds to direct mutual funds in full or partially.
  3. Asset Management Company (AMC) Website The third option you have is to perform the switch through AMC websites. However, this process can be quite exhaustive in case you wish to switch funds invested in different AMCs.

Offline Mode:

You can also switch your investments to direct by visiting the near RTA or AMC branch in person. You will be required to fill up and submit a form to switch your funds to direct. The drawback in the offline mode is that you will have to visit all the AMCs in whose funds you have made investments in to perform the switch.

How Much Should I Switch?

You can choose to switch your existing portfolio to direct funds either in full or partially. However, with the switch being a kind of reinvestment, your funds can be subjected to capital gains tax and exit load. Hence, it is advised to make sure that you are switching your funds in full only when there is no exit load or capital gains tax applicable to your investments.

What are the Expenses Involved in the Switch?

Capital Gains Tax

Since switching from regular funds to direct mutual funds is considered as a new investment, 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

A switch from your existing regular mutual fund portfolio to a direct mutual fund plan can also attract exit load. Hence, it is advised to ensure that you are aware of the exit loads applicable to your investments before making a switch. When switching a regular ELSS to a direct ELSS, investors should also be aware of the fact that the lock-in period on the direct mutual fund plan will restart as the switch will be considered a new investment.

Why Should I Consolidate My Portfolios?

Once you have completed the process of switching your regular mutual fund plans to a direct one, it is advised that you re-evaluate the investments in your portfolio. This will help you assess and reconsider the allocation of your funds. In some cases, you might realise that you have too many portfolios in your possession.

This might be due to the funds you have directly invested in through various distributors or websites. Consolidating your portfolios will not help you concentrate on fund allocation but also give you a clear picture of how your funds are performing towards your financial goals.

Why Should I Reevaluate My Portfolio?

It is always advised to review the performance of your portfolio once you have performed the switch. You would not want to have a fund which is performing poorly or have too many funds exposed to the same stock or equity. You can always take the help of a financial advisor in you find it difficult to review your portfolio.

Most direct mutual fund platform also offers an online financial advisory system to guide you through the problem. Switching your mutual funds is very much similar to that of making a new investment. Hence, it is advised that you take it seriously.

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Quick Summary

The article explains how to switch regular mutual fund portfolio to a direct one, online or offline. Details on online switch via platforms or websites, expenses involved, and benefits of consolidating portfolios. Switch partially/full but consider capital gains tax, exit load. Reevaluate post-switch for better performance. Is switching to direct funds tax-efficient? How to consolidate multiple portfolios? Why reevaluate portfolio post-switch?

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