What happens to my ‘regular’ plan units when switching to a ‘direct’ plan?


What will happen to my units with the ‘regular’ plan after I switch to the ‘direct’ plan? Will all units be converted to the direct plan as per the NAV on the switch date or as per the previous SIP dates? – Gajanan G. Khandkar


Switching from a ‘regular’ plan to a ‘direct’ plan in mutual funds is similar to moving your investment from one fund to another. While the money doesn’t move through your bank account, it is treated as selling your units in the regular plan and buying new ones in the direct plan. This means you will have to pay capital gains tax and perhaps an exit load.


But do remember that when switching funds, while the investment value stays the same, the number of units might change due to the different NAVs of the ‘regular’ and ‘direct’ plans. Let’s simplify this by giving you an example: Say the NAV of the ‘regular’ plan is Rs 10, and you hold 10,000 units. Your total investment in the ‘regular’ plan would be Rs 1 lakh (10,000 x Rs 10).


Now, let’s assume that on the date of switching, the NAV of the ‘direct’ plan is Rs 11. In this case, while the investment amount of Rs 1 lakh remains the same, the number of units allotted to you will be slightly different. It will be 8,333.33 units (Rs 1 lakh divided by Rs 11).


Source- Valueresearchonline

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