Khyati Dharamsi

Mumbai: Now that direct investments into mutual funds no longer attract entry load, what do you do about your systematic investment plans (SIPs)?

If you are investing in a fund attracting entry load by way of SIP, wherein a regular sum is invested on monthly intervals, then the entire amount you invest is not invested in the market. A portion equivalent to the entry load of a maximum of 2.25% is deducted to be given to your mutual fund distributor as commissions.

You lose on the amount deducted as entry load, which is not invested, and hence your returns take a hit. If your SIP is for a longer time frame, then the amount deducted as entry load would run quite high.

Suppose you have taken an SIP to invest Rs 10,000 each month in a fund attracting a load of 2.25% for three years. The amount you are losing as entry load in on this investment is Rs 2,700 a year and Rs 8,100 in three years.

When you have the option of saving it by investing directly why not? But, what if you have just started your SIP few months ago, which was entered by your broker? Will you have to discontinue the same and then start a fresh one via the direct route?

As per the Association of Mutual Funds in India (Amfi), one can change the mutual fund distributor by replacing the broker code registered on his or her investment. Earlier, to change the broker code, one needed to provide a no objection certificate from the old broker.

However, no broker would shoot himself in the foot by providing an NOC to let go off a particular investor and the money earned from him. Clinching an investor is a tough job. Realising the loophole in the useful guideline of changing broker code, Amfi via its ‘AMFI Best Practice Guidelines Circular No.112007-08’ has discontinued the mandatory requirement of an NOC from the old broker, thus giving the tool more teeth.

So, when one wants to go direct on an existing SIP, he would have to replace the broker code with the word ‘direct’.

To make it direct, one has to notify the mutual fund house, in whose fund you invest in or the registrar for mutual funds - Computer Age Management Services (CAMS), Karvy Computer Share etc. A letter stating that you wish to discontinue taking service from your broker and invest directly should be sent either to the fund house directly or the registrar. The letter should contain essential details such as your investment folio number, fund name, broker name and his code. All the applicants under the scheme have to sign the letter as these signatures would be used for verification.

Remember that each different investment would require a separate letter. You can’t send the request to convert all the investments to direct in one letter. This is necessarily because the registrar sends the request to each fund house separately on your behalf and the fund house then processes it.

However, if you send the request to fund house directly doesn’t mean that the change will be made faster. It will take almost 15-30 days for the request to be processed. However, if your SIP due date falls in the middle of the processing time then the direct investment route would be put into place from the next cycle. You cannot save entry load on the money that has already been invested in the past.

In the past, if you had been investing by way of electronic clearing service (ECS) or post-dated cheques etc. you will continue to use the same mode even under the direct route. If you wish to change the same, you need to mention the same in the letter. But, not all fund houses would oblige to change the mode of investment. As the need for such a request emerged very recently not all fund houses follow the same procedure.

Some fund houses have a form, which is to be filled up to convert SIPs via broker to direct. Most ask for letters and some other asks to discontinue the existing SIPs and issue a fresh mandate. The later are very few.

Make sure to check with your fund house what procedure they follow, so long comprehensive guidelines on the issue do not come from Amfi or Securities and Exchanges Board of India itself.

Source : DNA