Your Queries—Mutual Funds: Switching from regular to direct plan is considered as redemption

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November 10, 2020 12:30 AM

Investors may also opt for the offline route by filling up the switch form and depositing it either at an AMC branch, or branches of registrar & transfer agents (R&Ts).

Market volatility should not be a reason to reduce the amount of SIP.

I opted for a systematic investment plan (SIP) through a bank three years ago. How can I make it a direct plan so that the expense ratio is reduced?
—Anupam Kumar
Investors can login to their accounts either on the mutual fund website or the website of an intermediary, and select the ‘Switch’ option to move out from the existing ‘Regular plan’ of a fund and into the desired ‘Direct plan’ option of the same fund. Investors may also opt for the offline route by filling up the switch form and depositing it either at an AMC branch, or branches of registrar & transfer agents (R&Ts).

Remember, you may be charged an exit load in case the units being switched within exit load period. Second, the switch would be seen as a redemption from the out-going plan and any gains realised would be subject to either short-term or long-term gains tax, as applicable depending on the holding period and the asset-class orientation of the funds concerned.

Stock markets are very volatile now. Should I continue or reduce my SIP?
—Vikas Singh
SIP is a viable option to avoid the risk of timing the markets and benefit from rupee cost averaging, i.e., buying more units when NAV is low and less units when NAV is high. Moreover, it helps one avoid behavioural pitfalls like buying more when everybody is buying or selling when everybody is selling. Market volatility should not be a reason to reduce the amount of SIP.

Do I have to give KYC documents to my mutual fund company every year?
—S T Narayan
Fulfilling KYC requirements is a one-time activity. Once it is done through a (Sebi) registered intermediary like a mutual fund company, broker or depository participant, one does not have to repeat it while dealing with another Sebi registered intermediary. However, if there is any change in the KYC norms, the investor would need to fulfil those requirements. For e.g. , updating Aadhaar number is now mandatory.

Do I have to pay capital gains tax on the yearly gains from SIPs?
—Gaurav Gupta
Taxes are applicable only on realised gains and each unit would be treated independently to determine any applicable gain (short-term or long-term) relative to purchase price.

The writer is director, Investment Advisory, Morningstar Investment Adviser (India). Send your queries to fepersonalfinance@expressindia.com

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