Need Expert Advice?Our Gurus Can Help

Should I switch my mutual fund investments from regular to direct plans now?

Ramalingam Kalirajan |8083 Answers |Ask -Follow

Mutual Funds, Financial Planning Expert - Answered on Jan 20, 2025

Ramalingam Kalirajan has over 23 years of experience in mutual funds and financial planning.
He has an MBA in finance from the University of Madras and is a certified financial planner.
He is the director and chief financial planner at Holistic Investment, a Chennai-based firm that offers financial planning and wealth management advice.... more

Question by SACHIN on Jan 16, 2025Hindi

MF advisor is not giving any services. Hence want all MF polio to be switch from regular plan(through advisor) to direct plan. Is it a right time to switch now as market is at low?

Ans: You are considering switching from regular to direct plans due to lack of service.

Your concern about market conditions before switching is valid.

Switching mutual funds requires careful analysis of costs, benefits, and future implications.

The Role of a Professional MFD
A Mutual Fund Distributor (MFD) with Certified Financial Planner (CFP) credentials offers essential services.

They provide tailored advice, portfolio reviews, and rebalancing strategies.

A professional MFD ensures your investments align with your financial goals.

Lack of service from your current advisor does not mean all MFDs are the same.

Why Switching to Direct Plans May Not Be Ideal
1. Lack of Guidance and Monitoring

Direct plans do not offer professional advice or personalised support.

Monitoring and optimising a portfolio on your own can be overwhelming.

2. Potential Errors in Asset Allocation

Without expert advice, it is easy to misallocate or overlook rebalancing needs.

This may impact long-term performance.

3. Tax Implications and Exit Loads

If you sell your current investments to switch, capital gains taxes may apply.

Long-term capital gains (LTCG) above Rs 1.25 lakh are taxed at 12.5%.

Short-term capital gains (STCG) are taxed at 20%.

Additionally, exit loads may apply for funds held for less than a year.

4. Disadvantages of Self-Management

Direct plans require you to make all investment decisions independently.

It may result in missed opportunities or holding unsuitable funds.

Why Staying in Regular Plans Through a Professional MFD Is Better
1. No Tax Implications When Switching Advisors

Switching your investments to another MFD involves no redemption or reinvestment.

Your funds remain invested, avoiding any tax or exit load concerns.

2. Continued Guidance and Support

A qualified MFD provides ongoing reviews, updates, and recommendations.

They can guide you during market fluctuations and life changes.

3. Value Addition through Expertise

A professional MFD ensures diversification, goal alignment, and portfolio optimisation.

Their active involvement enhances your investment experience and outcomes.

Timing of the Switch
Markets being low is not a significant concern for switching advisors.

Your investment remains unaffected as no selling or buying is required during this process.

However, this is a good time to review your portfolio for long-term alignment.

Actionable Steps
1. Find a Reliable Professional MFD

Look for an MFD with CFP credentials who offers regular services and personalised support.

Check their track record, client feedback, and service offerings.

2. Discuss Your Portfolio and Goals

Share your current portfolio and financial goals with the new MFD.

They will review your holdings and suggest improvements if needed.

3. Initiate the Change Without Redemption

Request a change in the broker code to shift your investments to the new MFD.

This process is seamless and does not involve redemption or tax implications.

4. Plan for Periodic Reviews

Schedule regular portfolio reviews with the new MFD.

This ensures your investments remain aligned with your goals.

Final Insights
Switching to a professional MFD is a wise decision if your current advisor is unresponsive. Direct plans may seem appealing but often lack the guidance needed for optimal performance. A professional MFD ensures ongoing support, better returns, and peace of mind. This is the right time to shift, as no tax or market timing issues are involved.

Best Regards,

K. Ramalingam, MBA, CFP,

Chief Financial Planner,

www.holisticinvestment.in
https://www.youtube.com/@HolisticInvestment

DISCLAIMER: The content of this post by the expert is the personal view of the rediffGURU. Users are advised to pursue the information provided by the rediffGURU only as a source of information to be as a point of reference and to rely on their own judgement when making a decision.

MoneyReply

You may like to see similar questions and answers below

Omkeshwar Singh | Answer |Ask -Follow

Head, Rank MF - Answered on Nov 06, 2020

Question by Dr - Nov 06, 2020Hindi

Why doesn't your MF expert recommend DIRECT plans instead of Regular plans? Regular plans generally entail a commission of approximately 1% per year every year. Since he is asking the people to switch, redeem etc. he can say that go for direct plan, unless he is biased towards the agents by recommending regular plans since he is associated with a MF platform. Please ask him not to do so. Why are you recommending only REGULAR plans for all the queries even for cases where the client has DIRECT investments? Please STOP this. You are supposed to give fair and unbiased advice to clients and not biased. At least stop mentioning REGULAR option. I hope you will do this.

Ans: RankMF is research and mutual funds distribution platform of Samco Securities Limited. RankMF rates and ranks the schemes available on RankMF and therefore all our recommendations are in regular plan.

The mode -- physical or digital and the scheme option -- Regular or Direct is completely an investor's choice.

Investors opting for direct plans are well versed with investing in mutual funds and do it themselves (DIY investors) and therefore can look at the direct option of the recommended schemes.

Investors should take informed decision and if required take help of qualified professionals before investing in mutual funds.

Money

Omkeshwar Singh | Answer |Ask -Follow

Head, Rank MF - Answered on Jul 23, 2020

Question by Saurabh - Jul 23, 2020Hindi

I am investing in MF via fund advisor. They have proposed me all below regular MF plan. Can you please suggest what should I do in this situation? Shall I SmartSwitch all my MF to direct plan?. Currently I have below MF in my portfolio. 1) HDFC top 100 2) L&T emerging business fund 3) Nippon India growth fund - Large Cap 4) Nippon Small Cap fund 5) Franklin India Equity Fund All above MF are in regular plan. I am looking for long term investment. Please suggest. Also suggest if all above MFs are good or need to make any changes to it.

Ans:

Name of the Fund	Category	RankMF Star Rating	Recommendation
1) HDFC top 100	Equity - Large Cap Fund	3	SmartSwitch to Uti Mastershare Unit Scheme - Growth Plan
2) L&T emerging business fund	Equity - Small Cap Fund	2	SmartSwitch to Axis ESG Fund Growth
3) Nippon India growth fund - Large Cap	Equity - Mid Cap Fund	2	SmartSwitch to DSP Mid Cap Growth
4) Nippon Small Cap fund	Equity - Small Cap Fund	1	SmartSwitch to Axis ESG Fund Growth
5) Franklin India Equity Fund	Equity - Multi Cap Fund	2	SmartSwitch to UTI Equity Fund - Growth