Switching from Regular to Direct Mutual Fund Investment within ELSS: A Comprehensive Guide
Investing in a mutual fund through an ELSS (Equity-Linked Saving Scheme) is often a strategic choice, especially for tax-saving purposes in India. However, for investors considering a shift from regular growth mode to direct investment mode, understanding the nuances and process is crucial. In this article, we will outline the feasibility of such a switch, the lock-in period considerations, and the necessary steps involved.
Can You Switch from Regular Growth Mode to Direct Mode?
Yes, it is possible to switch from a regular growth mode to a direct mode for your mutual fund investment within an ELSS scheme. Direct mode refers to investing directly with the fund house, bypassing the intermediary, which typically results in lower fees and commissions.
It is important to note, however, that switching from regular growth mode to direct mode will not alter the lock-in period of 3 years for your ELSS investment. This lock-in period is a mandatory feature of the ELSS scheme and applies regardless of the investment mode chosen.
Steps to Switch Your Investment from Regular Growth Mode to Direct Mode
To make the change, you will need to follow the process outlined by the mutual fund house:
Contact the Mutual Fund House: Initiate the conversation by reaching out to the mutual fund house to start the switching process. Fill Out a Form: You will likely need to fill out a form which includes details about your investment, your ID proof (such as a PAN card), and bank details. Submit a Written Request: Provide a written request for switching your investment from regular growth mode to direct mode. Confirmation: Once your application is processed and approved, you will receive confirmation that your investment has been switched to direct mode.Lump Sum Investments vs. SIP Investments
For lump sum investments, you cannot change the investment at any point during the 3-year lock-in period. If you are investing through Systematic Investment Plans (SIPs), the process is slightly different:
Lump Sum Investments: You cannot switch lump sum investments made during the lock-in period.
SIP Investments: You can stop new SIP installments in the regular scheme and switch to a direct plan. However, any existing investments, including past installments, will remain locked in for 3 years from the specific date of investment.
Tax and NAV Considerations
It is essential to understand that regular and direct schemes are bought at different Net Asset Values (NAV) and have different implications from a tax point of view.
However, this shift does not negate the lock-in period requirement. If you want to invest under a direct plan, you need to make fresh investments once the lock-in period for your existing regular plan has ended.
Note: Locked-in units, such as units of ELSS schemes prior to the completion of the 3-year lock-in period or closed-ended schemes, cannot be transferred from one scheme to a new direct mutual fund unless the lock-in period has ended.
Conclusion
The process of switching from regular growth mode to direct investment mode is possible but requires a clear understanding of the lock-in period and the necessary steps involved. Whether you are a new investor or considering a switch from an existing regular plan, it is advisable to consult with a financial advisor to ensure that the transition aligns with your overall investment goals and objectives.
If you have further questions or need assistance, feel free to reach out to the mutual fund house. Happy investing!