As per a Securities and Exchange Board of India (SEBI) circular dated September 13, 2012, Mutual Funds/AMC have been mandated to provide separate plan for direct investments, i.e, investments not made through distributors in existing and new schemes.

This direct plan will have lower expense ratio (excluding distribution expenses, commission, etc.). The plan shall have separate NAV.

In order to comply with the above regulations, Mutual Funds have classified the existing plans as Regular plan and have created identical schemes and their related options under the Direct plan as well.

These Direct plans are available for investors with effect from January 1, 2013.

Following are the FAQs based on the general rules followed across all Fund houses. However, some of the applicability may vary from Fund to Fund and hence SID/KIM/Addendums issued by the Asset Management Companies or their web sites can be referred for more and latest details.

If I mention the distributor code in the application and select the scheme under direct plan or if I don’t mention the distributor code in the application and select the scheme under existing/regular plan, how will my investment be classified?

Please refer table accompanying the article to understand the investment classification.

Will the investment already made without distributor code in the existing/regular plan be converted into the direct plan automatically?

No. It will continue to remain in the existing/regular plan. Investors desiring to bring the existing investment under Direct Plan may do so by submitting a switch request

I have some investments made through some distributors in my folio. Can I convert those investments under direct plan?

Yes. You can submit a switch request for converting the same from existing/regular plan to direct plan.

I have made investments partially through the distributor and partially without a distributor. Can I convert my entire investments to direct plan?

Yes. You can do so by submitting a switch request.

Is the NAV for direct plan different from the NAV for the existing/regular plan?

Yes. On the effective date, i.e. January 1, 2013, for the direct plan, the NAV will be the same for both existing /regular plan and the direct plan. Thereafter, there will be a difference in the NAV based on the expense ratio.

The value of my investments will attract capital gains if I go for redemption/switch out. If I go for conversion from regular plan to direct plan, will my conversion be treated on par with redemption and switch-out and capital gains be charged at the time of conversion?

Yes. It will entail tax consequences. However, it is advisable the investor consults a professional tax consultant before initiating such requests.

(To be continued)

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