When I convert to a “Direct” Plan, what happens to the units I have in my “Regular” Plan?

When I convert to a Direct plan, what happens to the units I have in my Regular plan

Your mutual fund units stay intact when you move from a “regular” plan to a “direct” plan, but there are a few key factors to take into account:

  • Cost Structure: Distribution fees, or commissions, paid to distributors are included in the expense ratio of a normal plan. This cost is absent from a direct plan, which lowers the expense ratio. Making the move is effectively choosing a less expensive structure, which may eventually result in higher returns.
  • NAV (Net Asset Value): When you move between plans, your units’ NAV doesn’t change. But because a direct plan has a lower expense ratio than a normal plan, the growth of your investment can be marginally larger over time as a result of the lower fees.
  • Transaction Process: Depending on the mutual fund company, switching may involve specific administrative procedures. This can entail completing paperwork or starting the switch via your investing platform.
  • Tax Repercussions: There is no capital gains tax associated with switching between plans within the same fund. However, depending on your location and holding duration, capital gains tax may be due if you redeem units in your conventional plan to invest in a direct plan.

All things considered, moving to a direct plan entitles you to reduced fees, which may eventually increase your investment returns. To fully comprehend the consequences for your particular investment portfolio and financial objectives, it is advisable to speak with a financial advisor.