FAQs on Direct Plans of Mutual Funds, 8.0 out of 10 based on 4 ratings
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As per Securities and Exchange Board of India (SEBI) circular CIR/IMD/DF/21/2012 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, AMCs 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 1st January 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 websites can be referred for more & latest details.

 

1. 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?

 

The following matrix may be referred for better understanding

2. 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.

 

3. 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.

 

4. 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

 

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

 

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

 

6.  I have an investment in the existing/regular plan which is 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.

 

7. If I want to convert my investments which were 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, you may refer to the Addendums issued by the Asset Management Companies or their websites for more details.

 

8. 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, you may refer to the Addendums issued by the Asset Management Companies or their websites for more details.

 

9. I have  a  running SIP/STP under existing/regular plan which is not routed through any distributor. Should I give a request for conversion to direct plan for the future installments?

 

No.  The request for the conversion is not required as the future SIP/STP installments will  be automatically converted to direct plan if the SIPs/STPs were registered not through a distributor.  For STPs the target scheme (switch-in) will be considered for the conversion into direct plan. You may refer to the Addendums issued by the Asset Management Companies or their websites for more details.

 

10. Will the conversion of the future installments of my SIP/STP registered under the exiting/regular plan be governed by the terms and conditions which were applied at the time of SIP registration or will the terms and conditions will be different for the future installments?


The terms and conditions will remain the same for the future installments of the SIP/STP registered under the regular plan.

 

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

 

Yes. You can give a request for the conversion to direct plan.  However, the terms and conditions that prevailed at the time of original registration will continue for the future SIP installments. 

 

12. I have a dividend transfer plan (DTP) in the existing/regular plan and also a special product of STP which was launched by AMCs based on appreciation/reverse switch.  Both these plans are not routed through the distributor. Will the future installments of DTP and also the future installments of the special STPs be converted into direct plan automatically?

 

As the guidelines in this regard vary from Fund to Fund, you may refer to the Addendums issued by the Asset Management Companies or their websites for more details. 

 

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

 

Yes. TDS will be deducted as applicable for NRIs.

 

14. 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 consult before initiating such requests

Source: CAMS

 






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Admin January 16, 2013

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