Mutual Funds

The do’s and don’ts of direct plans

| Updated on March 16, 2014

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Answers to queries that you might have

Mutual funds were mandated to provide separate plans for direct investments, i.e., investments not made through distributors in existing and new schemes with effect from January 1, 2013.

This direct plan has a lower expense ratio and a separate NAV.

The FAQs below are based on the general rules followed.

I have a running SIP/STP under regular plan which is not routed through any distributor. What happens to the instalments triggered prior to the implementation of the direct plan? Could you please explain?

Instalments already triggered and processed in the regular plan will not be automatically converted into the direct plan.

If conversion is required, a separate switch request must be submitted.

I have a SIP registered through a distributor in an existing/regular plan. Can I give a request for converting the future instalments of the SIP to direct plan?

No. You need to give a request for closing the existing SIP under regular plan and submit the new request for SIP in direct plan without distributor code. The balance in the regular plan can be converted into a direct plan by submitting a switch request.

I am an NRI investor. Will TDS be deducted at the time of conversion from existing/regular plan to direct plan?

Yes. For conversion of units from regular to direct plan, you need to submit the switch request. During the switch, the applicable TDS will be deducted

I have an investment in the regular plan, not routed through any distributor. Will the future dividend reinvestments take place automatically in the direct plan?

No. Dividend reinvestments will take place in the existing/regular plan even though the investment is not routed through the distributor. However, if you request conversion from regular/existing plan to direct plan, then all future dividend reinvestments after conversion will happen only under the direct plan.

If I want to convert my investments not done through the distributor from the existing/regular plan, wherein exit load period is still in force, will the exit load be deducted at the time of conversion (switch) to direct plan?

No. The exit load will not be deducted at the time of conversion (switch). However, the exit load will be deducted if the units are redeemed/switched-out from the direct plan before the exit load period is over. The age of the exit load will be from the date of investment in the existing/regular plan. As the exit load applicability may vary from fund to fund, please refer to the Addendums issued by asset management companies (AMCs) or their websites for more details.

If I want to convert my investments which were done through the distributor from the existing/regular plan wherein exit load period is still in force, will the exit load be deducted at the time of conversion (switch) to direct plan?

Yes. The exit load will be deducted at the time of conversion (switch) itself. After conversion, for any further switch or redemption from the direct plan, no exit load will be deducted even if the exit load period is not over. As the exit load applicability may vary from fund to fund, please look up the respective AMC’s website for details.\

(Contributed by CAMS Viveka, an investor education Initiative from CAMS. Views expressed are general practices in the MF industry and may vary on a case-to-case basis)

Published on March 16, 2014

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