How to switch to direct plans of Mutual Fund?

You may have noticed it or not but since 1st January 2013 mutual fund companies started to offer DIRECT Plans which are exactly like benefits of buying online term insurance. So let us know how to switch from your existing investments.

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Before proceeding further, first let us understand whether you are prudent investor who can manage your money in a better way to invest in MUTUAL FUND DIRECT PLANS. If you feel so then better to move directly. But do remember that online platform of investments offered by few brokers is NOT DIRECT INVESTMENT. In few cases, they may still charging you for each investment or SIP or without charging you directly they may be enjoying upfront and trail brokerages which you will never come to know. Because mutual fund company is paying those two brokerages before adjusting the NAV and you feel that nothing deducted from your investment.

Now in this post, I will try to explain you the procedure to move to direct plans.

1) Forms-All Mutual Fund companies have their respective forms to convert from normal plans to direct plans. You need to fill this form and submit it directly to respective mutual fund companies.

2) Filling the Form-While filling the form, you must mention existing folio number, SIP or STP details, and the investor signature.

3) Switching-Once you submit the filled form to respective AMCs they will issue acknowledgement slip of the same. It usually takes around 10 working days of time to complete the request. During this period your SIPs or STPs will be transacted as usual.

4) What about your distributor?-You are not required to take prior permission of your distributor for moving from normal plans to direct plans. Do remember that when you receive the next confirmation or statement, there will be mention of “Direct Plan” along with the existing plan name. This confirms that you moved to direct plan. From here your distributor will no longer get any commission from your future investments.

Few points to remember while moving to Direct Plans

  • All existing plans are eligible to move to Direct Plans.
  • All mode of mutual fund investments can be switched to Direct Plans except ETFs.
  • While investing first time if you forget to mention Direct as well as distributor code then default scheme will be Direct only.
  • If you mention distributor code in application form while investing first time but with scheme name you mention Direct then units will be allotted in Direct Plans only.
  • For ELSS or any lock-in schemes, you are eligible to move to Direct Plans once units are lock free.
  • If you hold few units in normal plans and few in Direct Plans then during redemption you need to submit the separate request for each category.
  • Switching from existing fund to Direct plan will be subject to applicable exit loads as they are treated as a normal exit only.
  • But if you have done prior investment without any distributor then switching from existing fund to Direct Plan will not be subject to exit load.
  • No exit load will be applicable in the case of moving from direct plans to normal plans. But any redemption or switching from such schemes will be subject to exit load from the date of original investment in direct plans.

Taxation of switching from normal funds to Direct Plans-

Converting from regular plan to direct plan is considered as redeeming or exiting from the scheme. Hence the normal taxation issue will arise i.e based on equity or debt fund applicable LTCG and STCG rules will be applicable. TDS will be applicable to NRIs while moving from regular plan to direct plan.

Hope above information will be helpful for you in using this facility.

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204 thoughts on “How to switch to direct plans of Mutual Fund?”

  1. Hi Sir,
    I just invested in NFO SBI multicap fund during inception in regular growth plan. Can I switch to direct plan now with out complicated process as it’s with in 4 weeks of investment?
    Sridhar

  2. I have 4 mutual funds in regular category in ICICI DIRECT. I want to sitch the regular funds to direct. How can i accomplish that?

  3. Hi Basu,
    i am a new investor and to be on a safer side i decided to invest in sbi magnum multicap mutual fund. Being a first time investor i approached a relative who works in SBI bank and got my SIP opened through him for this mutual fund. after a bit of research i realized that direct plan is better than regular plan and can be opened through ICCI direct or CAMS portal. He has also spelled the nominee name incorrectly when i verified online after portfolio creation and has not specified the SIP term as 5 years. It is just 3 weeks after having opened this SIP.
    My questions are:
    – Can i switch this regular plan to SBI magnum multicap direct fund now (opened 3 weeks back) without any losses ? — Can i correct my nominee details online?
    -Can i change the SIP year to 5 years than the 99 years selected by him?
    -Is there any tax implications if i switch now?
    any suggestion would really be helpful.

      1. Yes sir,, that’s correct. I meant icici direct platform through which I could have invested in the same mutual fund.

  4. Hi basu,

    I am highly intrested on your many articals.

    I am at present reguler MF invstment platform in last 3 years i invested 3000000 INR throu LIQDUID & DEBT Fund and then using STP /month to EIQUITY in almost 7 fund till countinew my 40000/month STP.

    Please sujest me STP fasility is posibe in direct plan.

    My gole is long term almost 10 to 15 years

  5. I have invested in 4 funds as SIPs previously through my agent. Now Agent guided me to opt a broker, in my case NJ wealth so that i can track my fund and also I never go through the email statement. and also little knowledge about funds. I know the loss.

    1. The advantages i found here is easy tracking of funds and
    2 For my children.

    Do you think i am right?

      1. Basu, You did advice a while ago to invest in direct funds through MF Utility. I should say that I was really interested, got a CANnumber and when I tried investing, I understood how bad the platform was and how unresponsive the customer care is. I know I am losing a percent but kept it to NJ, even that itself is not a great platform.

        As Suri said above keeping money in different AMCs and doing different trackings on a monthly basis, when it comes to SIPs, i feel till MF Utility or other direct platforms grow, stick to regular plans. Once again, I am sad about the loss, but keeps it simple for that fees

        1. You may have faced issue because of internet connectivity. I invest online directly to mutual fund websites (ICICI, Reliance, UTI, Aditya Birla, HDFC) and it is very easy and user friendly way to invest into direct funds. Take help of someone if you are facing issue. I agree with Basu, direct plan is the best plan. IN regular plan the ARN keeps sucking your money without your knowledge and they give zero advise. My ARN never gave me advise but as soon as I switched existing units to direct fund he called me to inquire why I was switching because his commission was going to stop! So my advise is stop regular SIP and start direct sip and also switch all existing units to direct that way you will ensure someone is not sponging on your your hard earned investment. Cheers!

  6. Hi ,

    I have been investing through different firms and in different proportion towards mutual funds.
    My investments are from Axis Direct , ShareKhan & Aditya Birla My universe and finally found out that none of the distributor are giving “direct option ” .Thus i decieded to invest directly in direct mode but how to track all together under one platform.
    I am investing nearly 20,000/- as SIP monthly in 18 different plans

      1. Ravi Kanth Varma

        Hi Raj,

        Do u mean rok great a login account in MFU for tracking all the funds under one roof , by the way is it possible to change/switch my existing fund in MFU website is “direct” mode available ???

        Rgds,
        Ravi

  7. Hello Sir,
    I am new in Mutual fund investor. I have invested SIP in four mutual funds in last 22nd September 2017 through agent. They are 1. SBI Blue chip (G): 2000/-, 2. Aditya birla sun life equity fund (G): 2000/-, 3. Axis long term equity :2000/- and 4. Reliance tax saver (ELSS) :2000/-.
    Sir please tell me, I am selecting the wright mutual funds or not ?
    According to review, can I change regular plan to direct plan right now ?
    Please suggest me.
    Thanks

  8. Hello Mr. Basavaraj,

    I have invested in about 14 funds from 8 AMCs, most as SIPs and some in bulk. I do stop some SIPs after review periodically and then switch to new ones. For me the advantage I get with investing through a broker, in my case NJ wealth is that I can find everything on a screen and I can track them easily. I know I would loss about 1 to 1.5 % when I don’t go DIRECT.

    The advantages are easy tracking of my funds and incase of disability or death my kins dont have to run around. It still seems great to add that 1 % in my investments. What do you suggest, with such diverse portfolio, should I still look for DIRECT or on the expense of brokerage, remain contended for the advantages as mentioned otherwise?

      1. As in?
        What’s that?

        I don’t take back the funds that’s already invested. But usually do stop the sips that hasn’t being performing for quite a period of time. I was searching for platforms in which I could invest in direct MFs, seems there are some like zerodha etc, but have to study if there are any hidden costs or fraud and if it’s worth it

        Know that it’s bad to time the market for SIPs, but for a bulk investment would like to wait for. So do you foresee any down in the current bullish scenario

          1. Basavraj,

            Is there a chance that one of these mutual fund companies may go bankrupt or any scenario in which we loss all money because of a company fraud (apart from market crash) ?

            1. Vishnu-Anything can happen in the financial industry. Including the money you keeping in your savings account may vanish within few minutes, your bank may totally go bankrupt and if you fear and keep money in home, then someone can robber that. Rest you to decide.

  9. Hello Sir,
    I have 2 funds wherein I invested lumpsum for couple of months (16,000 in total). Now these funds are temporarily suspended and do not take the fresh investment anymore. So I have an option to redeem or hold. I would like to know what should I do in such case or still there is any way to switch to direct plan (note: I have called up AMCs and they have advised to redeem or hold)?

    Thanks in advance for your guidance,
    Hemanshu

    1. Hemanshu-Fresh investment is suspended means they will not accept your switch to DIRECT. Because even though you are switching to direct, but for direct funds, it is considered as a fresh investment only. Hence, they suggested you either to redeem or hold.

  10. Hi, I want to switch funds from advisor to direct. As you stated , by doing so it is redeeming, can I still claim the tax for the same.

      1. For example, I have investigated 1L in tax Saving funds for this financial year in regular funds through distributor .For which now I want to switch to direct funds. Is that tax eligible since I’m exiting the regular fund scheme?. Thanks

        1. Banuchand-Yes, when you switch from regular to direct, then for regular funds it is withdrawal and for direct funds it is fresh investment. You can claim the tax benefit while investing in direct funds. But do remember that switching from regular to direct funds in ELSS or Tax Savings Schemes will be allowed once the invested period completes 3 years.

          1. But already existing funds are locked for 3 Years and being carried. I’m not understanding how this works. If you don’t mine, could you explain me in detail. Thanks.

            1. You can switch to DIRECT mode for ELSS only after 3 years completion and the whole investment that’s switched will have 3 year lock in again in DIRECT fund. For the question on tax benefit, you can claim benefit because you “EXIT”ed from tax saver regular fund and entered into tax saver “DIRECT” fund locking the investment for 3 years again.

  11. Wriddhi Dhar

    Hello Sir. I have started SIP more than one year now in regular mutual fund plans. I want to move to direct plans now. What is the most convenient to do so. a) Should i hold the current SIP’s which i have with my broker and open new direct plans i.e new folios with the respective asset management company? b) Or Can i use the same folio to start direct plans and stop the regular ones y linking them the existing folios to direct plans?

    1. Wriddhi-Stop the current REGULAR fund SIPs. Use the same folio and start investing in DIRECT funds by registering the new SIP. Move all units of existing REGULAR funds which completed a year (if the fund is equity).

  12. My current sip in icici Pru focused bluechip equity fund G regular. I do not wish to switch direct plan but Now I want to start new sip in same fund in direct plan with same email or mob or pan details. Is this possible and how?
    Thanks

  13. Sathyanarayana

    Bsavaraj sir,
    At present my mutual fund adviser is taking 3%of amount as ditributer comission in regular plan. With out informing me. Can i avoid this? Please clarify. Thanks.

      1. Sathyanarayana

        Namaste sir,
        My port polio is hdfc retirement saving fund regular plan. after taking only came to know that his company sent me a mail ie CAS statement that 3%of ditributer comission. what is sebi norms ditributer comission comission? And how can I avoid sir? Please tell me

        1. Sathyanarayana-He is not charging you upfront but it is adjusted to NAV when you invest in regular funds. If you think that you can manage fund on your own and adviser not adding any value to your investment, then use DIRECT funds.

          1. Sathyanarayana

            Sir, if I moved to direct plan from regular it considered as redeemed? but my port polio is less than one year I can’t claim tax rebates?

            1. Sathyanarayana-First request for SIP cancellation. Once it gets canceled, then register new SIP under DIRECT. Once all units of REGULAR funds completes a year, then you can switch from REGULAR to DIRECT.

  14. hi basu,

    Finally i have created the following portfoio for retirement with more equity allocation; please suggest if this is now ok and can i move forward with this portfolio for another 30 years. Midcap fund i have not yet stared.

    Product Expected return No. of years monthly contribution current balance Expected Corpus
    EPF 8 30 3000 234000 7000000
    PPF 8 28 1000 12000 1468151
    diversified fund 12 28 2500 1,16,27,240 ICICI value discovery
    Mid Cap fund 12 28 1500 6745618
    largecap 12 28 1000 2758584 icici focused bluechip
    Total Retirement corpus 2,95,99,593

    Please guide.

      1. Abhee-If goal is long term (around 30 years), then including EPF+PPF must be 30% and rest 70% in equity. For equity, one large cap, one mid cap and one small cap. That much is enough. Add one small cap.

  15. R. Venkataraman

    Hi,

    I have few Regular Closed-ended mutual funds with a brokerage. Due to poor service and unethical behavior of the brokerage I would like to close down the account. In this instance how do I convert my regular closed-ended MFs to direct closed-ended? Please advice.

    Thank you
    R. Venkataraman

  16. Hello sir, i have query regarding direct investment and investment throw distributor or throw any brokerage taking company.
    In last week i have invested amount in two different AMC’s throgh Direct mode. during that time i found that NAV value is more for Direct Mode than through distributor mode. For E.g. When i was selecting Direct then it shows me 25.7 whereas for Distributor mode it is showing 24.8.
    If is it so then through Direct mode , i will get less number of units due to more NAV Value.
    Please Clarify.

          1. sir doubt is that, in birla sunlife tax relief 96 growth if you invest amount direct mode then NAV is 25.7 where as in same birla sunlife tax relief 96 growth if you invest amount using distributor mode then NAV is 24.8. It shows that NAV of Distributor mode is less than Direct mode. Where as it should be opposite.

                  1. Sir, Please suggest the suitable reason for following,
                    I have invested Rs. 10000 in Birla Tax Relief ’96 Fund-ELSS – Growth-DIRECT on 24 March 2017 using ONLINE MODE . in my account statement it shows me allowed NAV is 25.99 and number of units alloted are 384.763.

                    On the same day My friend invested Rs. 10000 in Birla Tax Relief ’96 Fund-ELSS – Growth-DIRECT on 24 March 2017 using Distributor MODE . in his account statement it shows allowed NAV is 24.99 and number of units alloted are 400.16.

                    It shows that when i am purchasing through DIRECT Mode, It is Costlier To me than My FRIEND.
                    please CLARIFY…IT IS VERY IMPORTANT…To YOUR POST.

  17. Hi basu,

    I have started investing Rs. 2500 in ICICi value disc for retirement, through sip, i am 30. Can you please tell me how long i should keep investing in this fund. my expectation is just 12% per annum.

    along with this i invest in EPF 30000 per year and in PPF 40000 per year to generate sufficient corpus.

    Do i need to add any additional mutual fund?

    please guide

      1. hi basu!

        thanks for reply.

        means along with current sip, EPF, PPF, i have to add one large cap and mid cap right?

        Can i choose the choose the funds from your best mutual fund article?

        Also, If i go investing through MF utility is it ok?

        Please guide. Thanks.

            1. Hi basu,

              I am 30 year old and generated the below portfolio for my retirement.I am little conservative investor. Kindly request you to suggest if this is ok or any addition/ deletion required.

              This portfolio is made by myself.

              Product Expected return No. of years monthly contribution current balance Expected Corpus
              EPF 8 30 3000 234000 7000000
              PPF 8 28 3000 35000 2800000

              Large Cap fund 12 28 2500 1,16,27,240
              Mid Cap fund 12 28 1000 2758584

              Total Retirement corpus 2,41,85,824

              1. Produc Expected return No. of years monthly contri. Expected Corpus
                EPF 8% 30 3000 7000000
                PPF 8% 28 3000 2800000

                Large Cap fund 12% 28 2500 1,16,27,240
                Mid Cap fund 12% 28 1000 2758584

                Total Retirement corpus 2,41,85,824

                1. Thanks Basu.

                  Yes, right.but,I developed the above portfolio with a conservative approach.

                  I am working as guided by you.

                  Also, i had another question.if i choose one mutual fund now, can i continue the same fund till my goal tenure if i expect 12% yearly and if i regularly keep it balancing or i have to switch to another fund in between?

                  please guide.

                  1. Abhee-You no need to be obsessed with fund but only with your expected return. If the fund is consistently under performing, then throw that fund and invest in another fund. But do remember that crunching the portfolio so often is bad. Give enough time to the fund. No fund on this earth will remain either TOP or BOTTOM forever.

  18. Sanket Shirodkar

    Hi Basu
    Is it possible to stop regular plan SIP & start new SIP in same fund with Direct plan & redeem regular plan SIP amount once your SIP comes under long term capital gain (LTCG) ?
    instead of paying short term capital gain, exit load & switching formality ?

    1. Sanket-Yes, using same folio and under same fund or another fund, you can stop the existing regular fund and switch to DIRECT. Yes, based on fund type (debt or equity) stay for consideration of long term capital gain then you can move to direct funds.

  19. Hello Sir

    I want to buy mutual fund from AMC under direct plan. I have done research and can manage my portfolio.
    Now after buying under direct plan from AMC i plan to dmat it as i hv demat trading account with HDFC and all my documents will be under one dmat account for easy handling.
    1)Is this possible
    2) after dmating MF’s of direct plan will they remain direct or will become retail

    Thanking you in advance

    ulhas

      1. Sir
        Dmat accounts necessity is only for the purpose of consolidation at one place & ease of switching ,redeeming.

        Thanks in advance

        Ulhas

  20. Hi,

    I had invested in Axis Long Term Growth (ELSS) Plan in Jan 2013. If i switch to Direct Plan now, can i claim deduction of the amount as investment through 80C and save tax.

    or i have to redeem first and then invest new to claim deduction under 80C.

    Regards,
    Mital

  21. Lovely AND Useful article Mr Tonagatti,

    I am planning new SIPs for a time period of 10 years and beyond for two purposes : a) Huge amount after 15 years for my son`s education and settlement. b) My retirement plan which i need after 20 years and every year there after. Uptill now all my MF were through ICICI DIRECT, but i came to know that the broker percentage is really very high when the time period of SIP increases. My plan is to make five to six sips which lasts for 10/15/20/25/30 years duration.

    1) What plans are good for such a long duration ?
    2) Direct plans will have substantial higher returns in such long duration ?
    3)mobile application like wealthTrust offer MF investments directly, are they safe ?

  22. Nice man, saw that you have replied to every one. Hats-off to your patience. Never bookmarked any blog, now am going to bookmark this. Good going man keep it up.

  23. Hi Basavaraj,

    I really admire your patience in answering all queries. I understood so much from this and that has helped me start all my new SIPs as “DIRECT”.

    I have a normal ELSS SIP which has completed only a year or so. Would it be better for me to cancel SIP here and start a fresh SIP with DIRECT? I will switch these units after 2 more years…

  24. I have investing in four SIP’s since last 2 years. Now, I want to switch to direct, so Should I have to give ECS mandate in bank again to debit my account on monthly basis or their is facility of directly debit my a/c on monthly basis.

  25. Hi basu
    Pls advise on my current investment
    I have been continuing 2 regular sip from hdfc midcap and DSP top 100 for the last 5 years and 1 MF from hdfc midcap for the last 2 years.all the investments were regular and now I wish to switch to direct. If I switch now all my investments will be transferred without exit load and tax or investments below 1 year from now will be taxed with exit load. Or if I open new folio in direct fund and later if I transfer my above investments will I be freed from exit load and tax

    1. Sabu-If you want to switch, then first switch those units only which are completed one year or more. Because this will save from exit loads and taxation. Once the units less than one year completes, then switch them to direct funds.

  26. Hi Basu

    My Question is Is it possible to switch From One ELSS to Another ELSS Under below circumstances.
    case 1. ELSS1 to ELSS2 (2 different companies)
    case 2. ELSS1 to ELSS 2 (same company offering both ELSS funds)
    Within lockin as well as afer 3 Years (after lockin period) ?

  27. Dear All – Request your advice. I have HDFC ISA account that I use to invest in mutual funds. I have few questions –

    1. Is it really expensive to hold HDFC ISA account? They charge approx. 150 RS per quarter + Rs 100 per SIP cycle. Are there any other hidden charges other that this on entry or exit?

    2. I want to invest in Direct Plans of mutual funds. However, I don’t see them listed on HDFC ISA. Which means I am making less profit by investing in the regular plans of mutual funds. How can I invest in DIrect plans of mutual funds?

    3. I have some folios created through HDFC ISA. In future, if I want to close ISA account, what happens to these folios? I may not want to redeem the units but want to close ISA account. Is that possible?

    WOuld really appreciate if I could be advised appropriately. Thanks in Advance. – SK

    1. Kumari-1) Yes, it is expensive. I don’t think there are any other hidden charges.
      2) You have to visit the respective mutual fund companies portal and start investing directly. If you have folio numbers, then create login and start investing in direct funds.
      3) No need to worry. If you close your HDFC ISA, then it will not at all matters your mutual fund investments. So go ahead and close it.

  28. I started my first SIP investment with Reliance MF few days back. I went to registered AMC office of Reliance MF and wished to invest in a fund. I had researched for a month to invest in that fund. I handled all my documents myself. But when I got my first investment statement by email, i saw that the investment was made through an ARN. How is it possible? It was my research, my money , how can they put my investment through some broker. How is this possible? Can they edit/add ARN after I sign and give them?(I had left ARN field blank).
    Now i am thinking of exiting it after 1 year and investing it online through RMF website.

    1. Sudeep-The problem is not in your research but keeping the ARN field blank and not mentioning the DIRECT in front of the fund name. So they might have entered the business in their branch ARN. Yes, you can switch to direct after a year. However, using the same folio you can start investing in DIRECT.

      1. Dear Sir I started sip in one fund for five thousand monthly through agent. Now I want to enhance the sip amount by ten thousand (total monthly sip15k), which I want by direct method.Q-1 What should I do if I want to enhance the said 10k, directly in online?
        Q-2 what r the problems do I face while redemption?
        Kindly answer

  29. Hello Sir,

    I am new to the mutual funds and i want to invest in monthly SIP in 2 or 3 MFs as per my requirement below:

    1. Tax saving
    2. Low to moderate risk with good returns
    3. Ability to withdraw some part of money if required during crucial time.

    I have been searching and looking for options of mutual fund on internet from last few days and have come across a few mutual funds listed below:

    ELSS FUND

    1 Axis Long Term Equity Fund(G)
    2. Franklin India Tax Shield (D)

    BALANCED FUND

    1. SBI Magnum Balanced Fund (D)
    2. Tata Balanced Fund – Regular Plan (MD)

    DEBT FUND-LONG TERM

    1. Tata Dynamic Bond Fund – Regular Plan (D)
    2. HDFC High Interest Fund – Dynamic Plan (QD)

    EQUITY- LARGE & MID CAP

    1 Birla Sun Life Top 100 Fund (G)
    2 SBI Blue Chip Fund (G)
    3 SBI Magnum Midcap Fund (D)

    DIVERSIFIED FUND

    1. UTI MNC Fund

    Kindly suggest if these suits as per my requirement.

    I’ll be very very thankful to you.

    Regards,

    Navam Agarwal

      1. Sir,

        sorry but its not 2 or 3 years. I said i want to invest in 2 or 3 mutual funds schemes. Tenure could be from 7 to 15 years and the requirements are:

        1. Tax saving
        2. Low to moderate risk with good returns
        3. Ability to withdraw some part of money if required during crucial time.

        Kindly suggest.

        1. Navam-But ELSS (tax saving funds) will have lock-in of 3 yrs. You can select Axis Long Term Equity or HDFC Tax Saver for tax saving. Other than this, you can chose HDFC Balanced fund to be at safer side.

  30. Capt. KR Raja Reddy (Retd)

    Sir, I am holding demat account with SBI and trading account with SBISmart. I have applied for mutual fund UTI-MNC Fund (UGS 10000) growth option Direct for Rs 5000. But they have not allotted direct scheme units. Instead allotted normal units, which costed me more money and less units. Why so it happened. Whether SBI Smart are allowing for direct units or not. If allowing what are the schemes. Would you please let me know this. If they are wrong then what I have to do. Thanks. KR Raja Reddy, Tirupati.

    1. Capt.Raj-SBI act like an adviser. None of advisers, demat and trading account providers or online portals (except respective mutual fund companies portals) will provide your DIRECT plans. You have to buy them from directly through Mutual Fund companies.

  31. Kawardeep SIngh

    Hi Mr. Basavaraj Tonagatti

    Thanks for spreading personal financial information. I am investing in mutual funds from last 5 years through SIP in following funds.
    1. HDFC Growth fund (G)
    2. ICICI Pru Dynamic Plan (G)
    3. IDFC Sterling equity fund (G)
    4. Reliance Equity opportunities fund Retail Plan (G)

    All these investments are through mutual fund agent. I was not aware about trail commission which is affecting my overall returns every year and my agent is not providing me any report or suggestions etc. I am checking reports on my own efforts.

    My question is
    1. i am planning to invest more in SIP in direct plans. So can you please suggest me good funds in diversify/Mid/small cap funds keeping in mind that my investments will be of long term.

    2. Do i need to switch existing funds.

      1. Kawardeep SIngh

        Dear Basavaraj Tonagatti

        For some reasons i had stopped my SIP for HDFC Growth fund and ICICI Dynamic plan after SIP of 5 years in each fund.

        For diversification i am thinking of switching of my exciting units of HDFC Growth fund to HDFC Midcap opportunities fund(Diversify to Midcap) and Icici Pru dynamic plan to Icici bluechip equity fund (diversify to Large cap) and continue SIP in new funds.

        If i switch then my portfolio will be
        1. HDFC Midcap opportunities fund (Midcap)
        2. ICICI Pru bluechip equity fund (Largecap)
        3. Reliance Equity Opportunities fund (Diversify fund)
        4. Idfc Sterling Equity fund (Small & Midcap)

        Please suggest if i am wrong.

          1. Kawardeep SIngh

            I am selecting two midcap funds just because my investment horizon is very long time(20-25 Yrs). I am continuously investing in IDFC Sterling equity fund from last 5 years and getting decent returns.

            Whats your suggetion.

  32. Hi Basavaraj,
    I want to close my trading account with Kotak Securities because their service is pathetic. Unfortunately, I have invested in ELSS through them, with lock-in period ending in 2017. After searching online and even asking other brokers like Sharekhan and ICICI, I couldn’t figure out how to transfer the ELSS holdings. Could you please advise how I should go about this?

    1. Aravind-What service of your’s looking pathetic? If you are totally uncomfortable with Kotak then you can open the demat account with others and transfer your holdings from Kotak to new demat holder.

      1. Actually, I already tried transferring my ELSS holdings to another broker (Sharekhan), but learned that it was not possible due to lock-in period of ELSS. I understand the lock-in for the money invested, but I don’t understand why I have to be locked-in to the broker as well. Please note, I am talking about ELSS, not shares – I know how to transfer shares to other broker.

        As for Kotak Securities, their service is even worse than State Bank of India (which is the Gold Standard for horrible customer service).

        1. No replies to emails for several weeks.
        2. When I do receive a reply, it will be irrelevant to the question asked, despite asking the question in one simple English sentence (not more than 10 words long).
        3. Customer Care number is hopeless, most of the time the response to query is, “the concerned person is not available now, please call back later”.
        4. Customer Care responds to queries through random guessing, and often I have to educate them about trading and mutual funds, and even their own procedures.
        5. For a simple request like updating the bank account linked to my trading account, I had to give an elaborate explanation, like this, “I have two bank accounts, account A and account B. Currently, when I opt for auto-debit, the funds are debited to my account A. Now, I want to change it so that the auto-debit will debit from my account B. Please tell me what I should do?”
        6. After submitting the so-called Common Updation Form for the above (after spending an hour and escalating it to level 3), the account was updated in the record, but the old account is still used for all the debits and credits!
        7. When I enquired with Customer Care, they claim that they never told me to submit the form, and it is “not possible” to update the account. As they never respond meaningfully to emails, I have no written record.

        I can no longer tolerate this nonsense, so want to close my account entirely. However, due to this ELSS lock-in, I am not able to do so, it seems.

        Could you please advise it is possible to just close the Kotak Securities account, and then I can contribute to the ELSS directly? When I started the ELSS investment, I was not aware of the so-called Direct Plans, or else I would have just avoided this Kotak Securities entirely.

        1. Aravind-I understand that ELSS is lock-in but it does not mean that you can’t transfer to another demat. I think Sharekhan people misguiding you. Please go through below link of NSDL. they mentioned of what I said earlier. You can still opt for demat with DIRECT. Because you already have folio numbers. You can go direct and holding must be in demat. No charges for your investment from any broker (just they charge for Demat).

          1. The last FAQ on page 7 of NSDL link document you had given is saying that “You can transfer Mutual Fund Units from one demat account to another demat account (i.e., transfer between DPs of NSDL) or from demat account of one depository to demat account of another depository except for Mutual Fund Units which are under locked-in (say ELSS units).”

            It is obvious that – to convert to direct plan of the ELSS fund units, we need to wait for the end of lock-in period.

            But, the above statement is saying that it is not possible to transfer ELSS units from one demat to another demat till the end of lock-in period. Are you not contradicting what NSDL says ?

            1. Rama-I said that you can move to direct only after the lock-in is over. In what way I am contradicting? Moving units from one demat to another demat is what I discussed above, but discussed above moving from regular plans to direct plans.

  33. I want to start investing in Mutual Funds for the first time using online portals, preferably using DIRECT Plans as the distributor code will remain empty in the application form.

    Now, as this is my first investment in Mutual Funds, my PAN is not KYC compliant.

    If I go by the list of POS mentioned on the website (http://www.cvlindia.com/), all the POS are investment Firms/Agents which are only interested in doing your KYC until you buy Mutual funds from them which inturn makes my investment INDIRECT.

    So where I could I get my KYC done (standalone) even with a fixed fees or charge; But not bound to buy a policy or Fund from them.

    OR, Alternatively do I need to do my first investment through a Firm/Agent only i.e. INDIRECT investment.

    Please suggest as I have already visited a few POS from the list and none proved helpful.

    Regards

    1. Sharma-First think yourself whether you are capable of handling and analyzing the funds on your own. In mood of saving around 0.5% of your investment, you may end up in wrong investment. It is entirely your call to take, I am not suggesting you either to go regular or direct mode. To invest in DIRECT funds, you have to either visit respective mutual fund company manually or to CAMS. Along with fresh application of investment, you have to submit KYC documents. Once the first investment done along with KYC processing, then you can take the printout of KYC status in portal of CVL KRA and attach with rest of your investments.

  34. Hi
    I have just started investing in mutual funds through an online portal. I have paid for one month SIP. Now as the folio has been created, I can invest in Direct plans from AMC website. So under a single folio number there will be some units of regular mode & some units of direct mode. Is it possible ? How to convert the units got from first SIP installment to direct mode in this case. I have paid Rs.1000 as SIP, so the exit load to be deducted will be 1%, i.e Rs.10. Am I correct ?

    1. Ranjan-Yes, under one Folio you can have many funds and various categories like regular, direct, growth or dividend, but within same AMC. In order to stay away from exit loads or taxation (in case of equity funds), better to switch after one year. However, in case of ELSS, you can switch only after the lock-in over.

      1. Hi
        OK. I will change those units to direct mode after one year. But what is the process to change those units & add them to the existing direct mode units ?

  35. Sir , Although I am doing a lot of investments via Sharekhan, your comments have opened my Eyes..After doing a lot of research , I found CAMS and Karvy both provide the direct Mutual fund investment facility …

    I logged in into CAMSonline and found my three mutualfunds portfolio already allocated and the CAMS was giving the onlie option to invest further into same folio number of the mutual funds via Direct option.( also also Mobile Option)

    I coudnt find this in Karvymf website except just to receive the cumulative investments via email…

    As there are lot of fund houses are with CAMS and lot more with Karvy , I wanted to know how I can opt for Online Investment option via Karvy In direct mode..

    Also , my current DP and trading account is with sharekhan and AMC is 400 Rs per year , I rarely use the trading options ( I still have some gold ETFs under that ) , but want to come out of them , but I am holding a lot of mutual funds with them which I can apply and redeem online with sharekhan seemlesssly

    Please suggest the best option for me to invest directly ” Online ” as it seems KArvy don’t offer that facility and running around all mutual funds to complete the paper work is a tedius task for me ,( Being on touring job always).

    Please suggest if how I can close my sharekhan account to save the AMC charges as they still hold my DMAT account and I am having some ETF shares / mutual funds with them

    Thanks for your help

    Vivek

  36. Hi,
    After shifting to direct plan from regular, will it be possible for my distributor to shift it again to regular? Off late he is going on jumping from one mf to another without my consent.
    Regards

  37. Thanks for your valuable article.

    I have invested in some MF’s online through HDFC Securities (hdfcsec.com) which doesnt allow for direct plans.
    Now I want to convert (after 1 year to avoid SCTG) to direct plans .

    Do I have to submit KYC to every Mutual Fund House or since I’m already an investor through my agent(?) HDFC securities , Mutual Fund houses already have my KYC ?

  38. Hello Sir,

    Thanks for the great article above. I am new to this forum. This is an eye opener & a great piece of information for most of us.

    I use to invest in SIP of ELSS Mutual fund to save tax. Below are details of my Portfolio which i am planning to switch to Direct Plans in due coarse of time. Kindly suggest:

    1. L&T Tax Advantage Fund – Growth: I started investing in Mar 2011 via SIP & invested for 3 yrs. My current folio cost is 72,000 & current value is 1.20 L. Some of the units i can redeem now & some are locked. In your opinion, Should i just switch from normal to direct plan or reinvest in any other ELSS fund?

    2. Reliance Tax Saver – Growth (opted 3 yrs Sip Plan)& Axis Long Term Equity (1 yr SIP)- Growth : I started investing in SIP just 6 months & 1 month back. Now i plan to switch from normal to direct plan. Kindly suggest how should i go ahead & would there be any switching cost.

    Need your advice how to go ahead.

    Thanks & Warm Regards

    1. Aryan- 1) Switching to same Direct fund or to other fund depends on how many free units you have. You can transfer the free units only.
      2) In this case you need to first stop the SIP to normal plan. Then start investing to direct option plan. You can’t transfer as units are locked for 3 years.

      1. Dear Sir,

        Thank you for your advice.

        I checked with L&T Mutual fund. I have 3292 total units out of which 1153 units are free of value 44k which can be redeemed anytime.

        While, there is a catch in switching to direct plan i.e. the units will be considered as a fresh purchase so the units will be locked for next 3 years as well.

        I have read in many articles that L&T Tax Advantage Fund is a under performing fund & low Crisil rating as well.

        I have following options to choose from:

        1. Exit Normal Plan & Switch to Direct growth option of same plan
        2. Exit & Invest in New High Performing ELSS Tax Saving funds ( “Top 10 Best Mutual Funds to invest in India for 2015“).

        If i go for option2, Should i invest in SIP/Lump sum at this point of time?

        Kindly suggest.

  39. Hi,

    Superb article!

    I have recently started SIP with broker being NJ India. And recently I got to know regarding direct plan.

    If I want to switch, what should be my way of switching to direct plan without spoiling relationship with broker?

    Is this right time to make some lumsum investment if I am looking for staying invested for next 5 to 7 years?

    In ELSS, which is the best fund?

    Could you recommend some good funds in large cap, mid cap and small cap segments?

      1. If i directly invest in my exisitng folio, i hope i will get option of choosing direct plan. If i close trading account of NJ which i opened only for MF, at the time of redemption, will i get my amount directly deposited to account linked to folio? If yes, then in how many days?

        Is it worth continuing with NJ trading acct only because i get demat as well? Any necessity of demat for MF?

        1. Nirali-Instead of redemption request for STP (Systematic Transfer Plan). If you do so then they will not credit amount to your bank. Instead the amount will be transferred to direct plans and in direct plans it will be new purchase. For old regular fund it is redemption. It is not at all necessary to continue your NJ Account.

  40. I have made some investments in DIVERSIFIED EQUITY MF since 10 years. If I switch from normal(thru agent) to direct mode of investment, Please clarify – Whether redemption before completion of one year of switching, will have any exit load or short term capital gain. Please clarify immediately as I want to switch immediately and my investment has become quite big and I am loosing a lot in agent commissions. Thanking you.

    SK GUPTA
    Kolkata

  41. Hi i had recently started a/c in fundsindia for investing in mutual fund there everything regular one how to start invest in direct plans now or i had to open an a/c separately

    1. Gowripathy-If you want to invest directly then switch your existing investment to direct option. FundsIndia will not offer DIRECT mutual funds. So you need to do that by contacting individual mutual fund companies of you are investing.

  42. Hi Basavaraj,

    Great info. Though I usually do quite of due diligence before investing but I had completely missed the point of brokerage by investing via these online portals. Only lately it stuck me and when I started searching on websites, came across your article.
    My simple question – When I try to invest through HDFC Sec, they give an option of Growth plan and Direct Growth plan. Does it mean that the upfront charges for direct one would be nil however it will exists in growth. As I understand the commission with every SIP would stay (by NAV adjustment) in both cases.

    Regards,
    Amit

    1. Amit-If you go DIRECT option then there will be no commission involved, whether it is Growth or Dividend. But HDFC Securities will not provide you any Direct plans. Because simply they will not earn anything on this. I think they are indirectly pushing you to normal plans by stating direct. Cross check once again at your end and then go ahead.

  43. I th0ught demat account awas the only way of investing in SIP and took a demat account from Motilal Oswal only for this purpose!!! I also started a few SIPs only 15 days ago (one installment of Rs. 1000 each). Would it be wise to stop paying SIP installments, redeem the amount invested and close the demat account and invest directly in SIPs?

      1. Sir,
        I invested 2 lakhs lumpsum amount in BSL cash manager fund (ultra short term debt fund)through an agent . My question is that whether switching from regular to direct plan is beneficial for me. I want to continue this fund 2-3 years more.

  44. Hi,

    Q1. I am having a mutual funds investment account opened with my bank.
    Through this investment account, I have invested in schemes of various mutual funds.
    Hence now I have Folio numbers in my name with all these various Mutual Funds.

    Now if I want to make further subscription in ‘Direct Mode’, can I simply use the physical subscription forms of the respective Mutual Funds and mention the category as ‘Direct’. OR will I first have to use a ‘shift to direct’ form. I do not want my existing investments to be moved from ‘Broker’ to ‘Direct’. I just want my future subscriptions to be treated as ‘Direct’.

    Basically the question is whether each future subscription in a particular Folio is looked at differently by the MF companies ie. the subscription can be ‘Through Broker’ or ‘Direct’ depending on what is mentioned in the subscription form. OR is it that once a Folio is defined as ‘Through Broker’, all the future subscriptions are treated as ‘Broker’, even if the future subscription forms mention ‘Direct’.

    Q2. Also if I understand correctly, the Rs.150 subscription commission that is applicable for brokers shall not apply if the subscription is less than Rs. 10,000.

    Q3. Now even my wife wants to invest in Mutual Funds. To save her from the hassles of filing physical forms of multiple MFs but at the same time to save her from the commissions, I have the following plan:

    [A] Open a MF investment account with her bank. This will allow her to invest online to the schemes of multiple MFs, without the hassles of filling up separate forms.

    [B] Invest sums of less than Rs.10,000 in one of the schemes of each of the Mutual Funds. This will help her create Folio Numbers with each of the Mutual Funds. At the same time since the investment amount is less than 10,000, there will not be any commission deducted for the initial investment

    [C] Fill up the online access forms of the respective Mutual Funds so as to get online control of the investments and the future subscription and redemption requests

    [D] Make Future subscriptions directly through the respective MF sites and not through the Bank’s portal.

    [E] Close the investment account with the Bank.

    Please let me know if the above system would work as planned.

    Regards,
    Sandeep

    1. Sandeep- 1) If your new SIP registration is Direct mode then the past is past. Your new investments will be treated as under new scheme. So old investment will still be their with as usual non direct investment (Do remember that both the funds are treated separately).
      2) No your assumption is wrong. This expense is not at all attached to any expenses. So even if your subscription is for Rs.1000 SIP then too this expenses will be there.
      3) You are right. But why you still need your existing investments be with banks? why can’t shift all of them to Direct mode?

  45. Capt. Kripal Singh

    Dear Mr. Basu,

    I have purchased Quantum Liquid fund and Quantum Long term equity fund plans (direct) under one single folio, with a view to transfer systematically from liquid to equity fund. Thinking of ease of online switching I converted it into demat mode. But now I have come to know that since the units are in Demat mode I cannot switch between funds through Quantum online account. Quantum says it can be done only through my DP (which is sharekhan) and Sharekhan says that they dont have such process or facility and should be done by Quantum only.
    I have no idea how to go about this and request if can guide me with this. The Sharekhan account is with CDSL.
    Plz Help…

    1. Kripal-I think Sharekhan is correct. Because you need to request for STP from liquid to Equity. So only Quantum can do this. Sharekhan is only a DP in demat format. They can transfer from one fund to another.

      1. Capt. Kripal Singh

        Thank you for your reply.
        The only transaction Quantum will allow me to do is purchase additional units. I cannot redeem, transfer or switch through their online account. They have told me to ask my DP to do it.
        Another option Quantum has given me is to convert from Demat to physical mode (Re-materialize) and then they can switch it. But the conversion can also need to be done by Sharekhan, which they refuse they cant.
        I am confused.

        1. Kripal-Then it is problem of Quantum. Because no DP can initiate the transfer of units, switch or any other transactions them self. Also when you opted for DIRECT Option then Sharekhan is mere demat holder. I think Quantum mis-understood that you invested through Sharekhn.

  46. Hello Sir,

    First of all I must say that you have a great website and I make sure that I read almost every article that you publish.
    You are a major source of my financial awareness.

    My questions are:

    A) Suppose I have an open ended SIP of a MF through a distributor and then later on I shift to a direct plan of the same fund house then
    1) will I have to redo KYC ?
    2)Will my folio number change when the shift happens ?
    3) Will my ECS clearing at my bank have any change as long as SIP amount is same ?(Do I need to inform bank about this transfer ?)
    4) Apart from exit loads and taxes are there any other losses ?
    5) Since I am going for direct route, when the amount in my folio-AUM gets transferred, the number of units that I get will be slightly lesser because the NAV at the direct route option is slightly higher ? (Yes/No)
    6)If I redeem all my units, and say after two years I want to start a new SIP in the same fund house then will I have to fill forms again ? Will my account be active ?
    7)Since during conversion from distributor to direct route, the policy is treated as exit, so when the units are shifted to direct route will the tax related investment time restart ? eg. If I have an SIP in distributor mode for 1 year. When I move to direct policy it is treated as exit and so I have to pay STCG because as per new budget, 3 years is minimum period of investment for nil tax. So in new direct policy created, will the tax relief period be again set to 3 years ? OR 2 years since I have already spent 1 year in distributor mode ?

    Thanks in advance for your answers.

    1. Nithin-KYC is one time process. No need to undergo once again. But if your KYC was done in old format and presently not showing status as “KYC Verified with CVLKRA” then you need to submit revised form along with PAN card zerox. Otherwise it is not required. You can retain the same folio number or can generate new one. Yes old investment will get cancelled as SIP instruction. You need to submit new instruction through SIP form. So you need to freshly inform the bank by cancelling the existing one. No apart from tax and exit load there is no losses. It depends on funds to funds like whether your units increased or decreased as it depends on NAV. Also concentrating on units and NAV is not right way. Instead concentrate on performance of fund. Yes, when you exit then the applicable STCG and LTCG rules apply. Do remember that changes done in current budget apply to debt funds but not to equity funds. If you are equity investor then LTCG is still tax free if holding period is more than a year.

      1. My risk appetite is low to medium. I am a 27 year old bachelor. I plan to buy term and health insurance by the year end. I am interested in long term investments of period 10+ years. (or even longer if needed). My aim is to grow my money and beat inflation and generate a good corpus. I am interested only in open ended and growth plans.
        I have purchased below 3 funds in SIP mode monthly. Each fund 2K per month. They are:

        1. Birla SL FL equity fund. (Large cap)
        2. ICICI focussed blue chip. (Large cap)
        3. HDFC midcap oppurtunities. (Large to Mid cap).

        Currently I am in distributor mode. Once comfortable I might move to direct mode. This I will do after 1 year to prevent losses on exit losses and STCG.

        My question is: Am I on right track ? Is my fund selection correct ? Currently all funds are debited on same day of month which I plan to change to weekly spaced dates soon.

        Also I can add additional 4k money per month for some more funds. Can you recommend anything ? I think I have covered large cap funds in my portfolio so it ok if I take more mid-cap ? I read at many places that banking and infrastructure funds are good if applied now. Can you recommend some ? (say 1 banking and 1 infrastructure). If these are purchased, then how long would it be worth holding ? 4Y to 5Y ? (Since they are not large caps).

        Which will a yield a higher return over say a long period of 15 years ? A mid-cap fund or a large cap fund ? If time used for investment is large does it make sense to take mid cap instead of large cap ?

        1. Nitin-How you come to know that your risk appetite is low to medium? At one point you are claiming that you are low to medium risk taker. But at the same time you want to beat the inflation (which is currently around 8%) generate good corpus. Do remember that risk is directly proportional to return. Retain ICICI large cap and come out of Birla fund. May I know the logic behind your plan to change to weekly spaced dates? For further investments, I suggest you to choose one fund from mid and small cap funds. Please avoid any sector funds as they are more risky than diversified. There is nothing called which gives higher return like large cap or mid cap. But try to diversify your portfolio to get average good returns.

          1. “Nitin-How you come to know that your risk appetite is low to medium?”
            Actually what I meant was that I do not want to take high risk but I am ready to go up to medium risk.

            Can only high risk beat inflation ? I think even good large caps which are low risk earn annualized around 15-20% interest which easily beat inflation. Correct me if wrong.

            “Do remember that risk is directly proportional to return”——-I Agree !

            “May I know the logic behind your plan to change to weekly spaced dates?”
            I read on another blog or somewhere else that debiting on same day has issue if market has spiked, I will get lesser units for the amount. This method is somewhat like SIP philosophy where you separate purchases of units by fixed time so that you do not buy when market value is high.

            “Come out of Birla fund”
            Any specific reason for this ? Is it not a consistent performer ? Is it because it is another large cap or having overlap with other fund ?

            “Please avoid any sector funds as they are more risky than diversified.”
            OK.

            “For further investments, I suggest you to choose one fund from mid and small cap funds.”
            So 1 fund and invest 4K in it ? Do you have any upfront suggestion ? I will anyway check valueresearchonline.com and pick one.

            “There is nothing called which gives higher return like large cap or mid cap. But try to diversify your portfolio to get average good returns.”
            So the key is high diversification and long term investment. Right ?

            Do you have any suggestion for tax saving ELSS ? Top two.
            I was thinking if this years additional sec80C 50K limit should be used through ELSS or PPF.

            1. Nitin-By investing in equity mutual funds for long term goals you definitely taking calculated risk 🙂 So go ahead with equity mutual funds. Regarding inflation-my point is that to push you further towards equity funds but not towards debt products like PPF, DEBT Funds. Regarding weekly spaced dates, do remember that it is difficult to time the market. Also please check for how long data they took before arriving at their judgement. Suppose the whole month market tends to upside daily then what will you do and at the same time after your SIP date if market falls drastically then what you will do? So choose a date which is comfortable for you and continue. If you really need to invest every time at low then better to wait for market to dip around 0.5% to 1% and at the same day try to invest. But for retail investors it is hard to follow the market. You already owning a large cap fund. So I don’t think one more large cap fund will serve any purpose. I am not suggesting all your further Rs.4,000 should go towards small and mid cap fund. Instead diversify that among in existing funds as well as new small and mid cap fund. They key is “Diversification and long term” than HIGH Diversification. Over diversification will also not serve any purpose. Think ELSS as long term product but not as 3 years maturing product. If so then go for ICICI or Reliance tax saver funds. Good that you planned to utilize the PPF and ELSS to fill the buffer of Rs.50,000. But filling into these product will actually match your financial goals also? If answer is no then why these two??
              s

              1. Sir,
                Appreciate your consistent inputs !

                Since I will be anyways investing 8K-10K per month on MF which are mainly equity based (Non 80C that too) I thought keeping some money in PPF would be secure just for a conservative and tax saving approach. (I Don’t want to waste the 80C limit)
                I agree that PPF is having lock in of 15Years and is not relevant for short term goals but then it is the next best thing after MFs. In this regard I came across a recent post of freefincal.com which advises ELSS over PPF strongly for youngsters and that too in NON-SIP mode. I have still not decided on it.
                Also, what are you views on diversification in sector based funds. (You advised previously to avoid sector based funds). Say for example, I hold 4-5 sector funds which are diversified, say correlation factor around (0.6-0.7) with respect to each other. In this way I reduce risk. I am thinking of putting 500rs for each fund per month so that monthly outgo in this would be 2500. This I can keep for a long time.

                In this way I think my portfolio will be complete meaning I would have kept both approaches in my investments which are :
                1. Core-satellite based approach (LARGE CAP +MID/SMALL CAP )
                2. Diversified Sector based approach as described above.

                Your inputs awaited 🙂

                1. Nithin-I agree with your point that you don’t want to waste the 80C limit. But at the same time, choose a product which also matches your financial goals. There are so many who are running happily to invest Rs.1,50,000 in PPF alone only with intention of they saved Sec.80C fully. But they fail to understand the liquidity issue of PPF and when they need the money exactly. So if it matches your financial goal then my second choice of product after equity mutual fund is always PPF. Why Mr.Pattu not recommend ELSS is, few only concentrate only on tax saving and second liquidity after 3 years (shortest lock in product in Sec.80C). But they forget the basic principle of equity=long term goals.
                  Regarding sector funds, I prefer to avoid. Because you can’t diversify all sectors and who knows which sector under performs if your investments only among 3-4 sectors? Instead it is better to have diversified and close your eyes 🙂
                  Let me know how you want to achieve your core-satellite approach as well as diversified sector based approach at one go with investment around 8k-10k. I use the simple formula “KEEP IT SIMPLE”. Rest is left with you 🙂

                  1. “Instead it is better to have diversified and close your eyes”
                    Ok, so I will take this approach.

                    “Let me know how you want to achieve your core-satellite approach as well as diversified sector based approach at one go with investment around 8k-10k.”
                    (I agree I am a bit ambitious, perhaps its the excitement, since I got to learn too many things in a short time :))

                    Core-satellite approach :
                    1. ICICI prudential focused blue chip growth plan—SIP 2K per month
                    This is for Large cap.
                    2. HDFC mid-cap oppurtunities fund.—SIP 2K per month. This is for mid cap.
                    3. IDFC Premier Equity Fund – Regular Plan —SIP 2K per month. This is for mid/small cap.

                    Using portfolio overlap calculator from freefincal.com, I checked that the overlap % between these funds: 1&2 is 8% , 1&3 is 12% and 2&3 is 4%. In this way I have ensured that I have covered full spectrum for diversification. Also all these funds are reputed and have been there for long time with consistent returns. They also have high AUM. PE ratio is <2.5% for 1&2 and 1.75% for 3.

                    Now I still have 4K to spare. I am thinking whether to do sector based diversification or add this 4K to the above three funds. I will do some analysis and come back.

                    "I use the simple formula “KEEP IT SIMPLE”. Rest is left with you :)"
                    Agreed Sir.

                    1. Nitin-I am too happy to say that you are learning and coming back with your knowledge sharing 🙂 I said about core and satellite approach as well as diversification in the meaning that how you want to diversify your sector wise approach towards core and satellite approach. So you said it by fund selection of diversified funds. That is what I pointed. Do use diversified funds and check for overlapping, that’s it. Regarding your fresh investments, why to choose another funds? Why can’t use the same? Great portfolio can be created with having 4-5 maximum funds. If you go for sector funds then maximum you can include around 5-6 sectors. Suppose one sector or two to three sectors done bad then what impact it will be on your investments? I am not suggesting you to stay away from sector funds. But why to take tension??

                    2. Sir,

                      I already had “ICICI prudential focused blue chip growth plan” and “HDFC mid-cap oppurtunities fund. Now I just added “IDFC Premier Equity Fund – Regular Plan —SIP 2K per month. Hope this addition is meaningful. (Instead of IDFC, If you have better suggestion for the mid/small cap you can suggest)

                      So as you say, I will ignore sector approach, and divert addition 3k-4k towards above funds. I think this should be OK.

  47. pankaj malhotra

    Hi Basu
    My question is currently I am investing in mutual fund via distribution in sip form, if I opt for dirct plan then as par my understanding .

    Benfits
    Charges would be less return and high return

    Drawback
    I have to go to directly to mutual fund office of concern mutual fund company of my city for purchase,redemption and other services which I normal get from agent , if I dont wish to opt online transaction in direct plan

    Regards
    Pankaj

    1. Pankaj-Charges will be less with effect in some higher percentage of return. Visiting individual insurance company is one time process. Afterward you can do all transactions online. No need to worry.

  48. Hi Basu,

    I have got one doubt regarding direct plans.

    1) In direct plans if have to change the fund house for investing in any other schem then i have to keep filling up the forms for different fund houses each time. is it true? what about KYC forms?
    2) Say in one fund house eg ICICI if i subscribed one schme then if i want to switch to any other scheme of the same fund house do i need to fill up forms again?
    3) Finally if i continue investing in some online platform for 15 to 20 years how much difference will there in final corpuse in % terms comparing to direct plans?.

    regards
    shaji

    1. Shaji- 1) KYC is one time process irrespective of fund houses. But yes when you want to invest fresh then you need to fill forms.
      2) Yes you need to fill the form once again. But few fund houses providing online access to reduce such filling form once the first investment done. So don’t worry too much about this issue as it is one time.
      3) Currently difference in NAV is around 0.50%. So think about the difference in long run.

  49. Arminder Singh Girgla

    Thanks for this great article!

    I’ve started off buying Mutual Funds though the HDFC ISA Account which is linked to Classic Account I have with HDFC. So with same Netbanking portal I can buy/redeem funds as well as SIPs. I’m doing my own research and setting up the SIPs and review them every quarter. So basically other than getting a single portal from where I buy funds from my Bank Ac and those are credited back, its not serving me anything else.

    Now with Direct plans in place and the difference in Expense ratios, it makes sense to move to Direct Plans. So following are my queries:

    1. Since I have been currently running SIPs, so exit load will be applicable and in addition would be Tax implications. Do you think its better to go for SWP from existing & SIP to Direct plans and time them so that in a year you can switch completely? Since most of those funds have exit loads for upto year, there would be almost nil exit load. Not sure how taxation would be effected in such case.

    2. Do we have a STP option available to move from existing regular ones to Direct Plans?

    3. Any ideas as to whether the difference in expense ratios in the 2 will move up and down? If yes, what factors could be those?

    1. Arminder-1) It is good that you planned like. You can go ahead as it will reduce your tax liability as well as loading.
      2) That you need to check with individual funds. But in my view this option is there.
      3) To be frank difference will be there, but how much is question to be analyzed once the data will be available. It is too early to predict. But yes, it will move up and down and will not be constant.

  50. Hello Basu,

    I have a small question:
    I have been investing in MF through online portals (FundsIndia). Now I want to start a new SIP and want to invest directly (not through any online portal). I would like to know difference in expense ratio while investing directly and through online portals? And what all extra charges these fund house charges (ICICI, HDFC and SBI), when I start a new SIP ? And in long run how much its going to affect, if I stick with online portals (10 years)?

    Thanks in advance

    1. Santosh-Difference will be around 0.50%. No extra charges from mutual fund companies for existing as well as new. Online portals are helpful to those who can’t do procedural activities themselves. But once your folio generate then all mutual fund companies also providing online investment option. So you can go ahead. But do take note that of monitoring funds regularly.

  51. Hi Basu,

    I have a small question –
    Suppose I have 100 units of a regular mutual fund, current NAV is Rs.20. So, the current value is Rs.2000.
    So, when i wish to move this from regular to direct plan, i will be allotted 100 units of the direct plan, with NAV of the direct plan (suppose current NAV is 21). That means my current value will become Rs.2100 after switching from regular to direct plan?

  52. I bought Sundaram Tax Sax saver MF via SBI capital Securities. But now, i closed SBI cap account. I send registeration form to Sundaram , so i can transact online of my folio. I got registered but i am not able to download my Account statement also. Teh reason sundaram is telling that my folio is with Depositary Participants. SBI is very much muted to my query and i dont knwo how to proceed.
    Plz help .

  53. Hi Basu, if I can afford 2lacs for a short term, say less than a year and I’m risk averse, what better option can I have other than term deposit with a nationalised bank? The objective is better yield than traditional FD. Please advice. Thanks.

  54. Hello Sir,

    1) I want to start mutual funds to secure my future. Could you please tell me how to start a direct MF and point me to an article (your own or someone else) which states the factors one should take care while starting a mutual fund. And could you tell me how should I determine which mutual fund company is best for me.

    2) Besides, I’ve a Jeevan Anand policy (T. No. 149) which was commenced at the end of 2011 at the age of 28 with S.A of 10L. Policy term is 72 and premium payment term is 20. May I know what does the policy term mean? I know that I have to pay the premium till it reaches 20 years period. Can we withdraw any money during the period or we will get the whole amount only after the maturity (ie, 20 years?) And I remember the agent said I will continue to be insured (for 10L) even after getting the S.A + bonus after 20 years till my death. Could you please elaborate this?

    1. Apk-If you are new to mutual fund investments then my advise will be to go through distributor who can help you in choosing funds and providing the service. Once you are comfortable with in and out about mutual funds then switch to direct plans. Also equity mutual fund is for long term like more than 7 years to 10 years time frame. So if your financial goals match to the time period then go ahead, otherwise stay away from equity. Regarding your Jeevan Anand, policy term means the premium paying term and policy maturity period in your case. You can’t withdraw any money during the period, but you are eligible to opt for loan on your policy. Yes in this policy, after 20 years completion you will receive SA+Bonus. From here on to your death you will have another Rs.10L as life cover on your life. But do you feel Rs.10L is suffice for your dependents if you die today? Think and decide about it before proceeding to any other investments.

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