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Should I switch my mutual fund investments from regular to direct plans now?
Ramalingam Kalirajan | Answer |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
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
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.
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