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  • Category: Finance and Investments

    Mutual fund transaction option of Switching Fund


    Confused about a mutual fund transaction option? Want to switch one mutual fund option to another? Find financial advice from out ISC experts on this page and decide how to switch.

    My father have invested in MF of HDFC by Lumpsum amount with Systematic Withdraw Plan. Fund is regular.
    I want to switch it from Regular Fund to Direct fund which has low expenses ratio.

    My question is 1.
    After switching off fund Is the SWP plan will continue? Or Will I have to opt for it separately?
  • Answers

    4 Answers found.
  • There is provision of switching from one scheme to other or within the different options of a scheme. People use the switching facility for various reasons as different schemes have different returns and other conveniences.

    Switching is the compressed notation for a redemption and a buy transaction. What you are doing is redeeming your old scheme and purchasing a new scheme even if it is the change of option within the same scheme.

    When you switch you have to fill a form and specify which exactly is the scheme and option that you want to buy. Accordingly your plan will be changed to direct from the regular one. Redemption will be at NAV prices and new purchase will also be at the relevant NAV. Exit load will be applicable as per the scheme.

    One thing to be noted is that when you redeem a fund before 1 year or 3 years depending upon whether it is a debt fund or equity oriented, there will be some tax implications. So just see the details of your scheme otherwise you will have to pay tax also on your redemption.

    Normally switches are allowed on a large range of products and you can see the details of the scheme carefully before switching.

    Knowledge is power.

  • Direct plans are the plans bought directly from the fund house without involving an agent. The agent's commission part will be passed on to investors in the form of a lower expense ratio. Thus, everything remaining the same, the returns of the direct plan of a fund will be maximum 2 per cent more than that of a regular plan. There will not be any other change. It will be the same as the original plan except the middleman is removed.
    Switching should be done only when an investor is sure that he can manage funds on his own.
    It is better to switch over from one fund to the other only if there is no exit load or tax involved. In case of an equity fund, it is better to wait for a year and then switch the accumulated fund as there would be no exit load nor taxation expense involved.
    I advise you to communicate your desire of changing with your agent if you have a good amount of investment in your long-term portfolio.

    drrao
    always confident


  • 1. You can switch to Direct Plan from Regular Plan. But please remember that even in such switching, you have to pay the applicable exit load, if any.
    2. Further, you may also note that in such switching also, the tax rule would be applicable. This means, if you switch before one year in case of an equity fund, then you are liable to pay tax. In case of a debt fund, for availing tax benefit by indexation, you are required to switch after three years.
    3. Further, your father has opted for the Systematic Withdrawal Plan (SWP) in respect of Regular Plan. Direct Plan is treated as a separate scheme. So, after switching from Regular plan to Direct plan, you have to again opt for new SWP. Old SWP applicable for Regular Plan will become invalid.


    Beware! I question everything and everybody.

  • Now a days switching is a popular option among the MF investors as it gives opportunity to select another option or scheme.

    Simply selecting the change in option may not help as the scheme portfolio will remain same and return will also be same except a very small amount difference coming due to change from regular to direct mode.

    It is better to study the portfolio of other good schemes also and based on that a decision for switching can be made. There are tax implications also which are already explained above by other members.

    After selecting a good plan options like SWP or growth can also be chosen.

    Thoughts exchanged is knowledge gained.


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