I do not need a distributor anymore and can invest on my own. What are the pluses and minuses of shifting from regular to direct plans in the same fund? How would I do that? Is this beneficial?
- Indranil Halder
With the direct plan, you can save a little more money which can translate into something significant if you are going to remain invested for a very long period. So, for a time period of 15-20 years, half a per cent to 1 per cent higher return due to lower expenses is a plus as compared to a regular plan. However, if your advisor was a friendly and useful guy and was able to advise you and give you reaffirmation, then it will be a loss as you will not be entitled to that thing.
Another thing is that if your investments are still old paper-based and if you are not a very well-organised investor, then the advisor or distributor will take care of all the paperwork or do the legwork for your redemptions or some change of mandate, your address or change of nominee. However, with the direct route, you will have to do all these things yourself. But, all these things have become relatively easy and can be done online much more efficiently and you'll be in far greater control. So, if you are a well-organised investor, you can manage your investments without any assistance, then, by all means, go ahead and do it.
With regard to how to do it. It can be done through all the new platforms that have come up or you can also request the fund company to move your money from the regular to direct plan. This will amount to all your existing investments being redeemed from the regular plan and new investment being made in the direct plan. Doing it translates into movement or change of your investment from the regular to direct plan. So, you would be liable for two things and you need to be aware of them.
One is any short-term or long-term capital gains that you may have, i.e. there may be a capital gains tax implication and that is a one-time thing and you will be liable for that even in future at the time of redemption. Considering the current market situation, it could be a good time to do it now because a lot of those capital gains might have vaporised amid the recent decline in the market. The second thing is that most equity funds or balanced funds carry an exit load for redemption within one year. So, your recent SIP investment will be liable for that exit load and that should be another thing to be taken care of.
If you have any less than one-year-old investment, then you may let that investment remain there so that it is exempted from the applicable exit load and move your remaining money. Later, when your relatively new investment becomes older, then move that money so you will be able to save on your exit load. That is something which you should be conscious of and that is how one could do it. It is beneficial in terms of enhancing your returns on account of lower expenses.