Should Quantum Mutual Fund Investors Switch from Direct Plan to Regular Plans?

Should Quantum Mutual Fund Investors Switch from Direct Plan to Regular PlansShould Quantum Mutual Fund Investors Switch from Direct Plan to Regular Plans?


Quantum Mutual Fund Schemes does not pay commissions to MF distributors. However in Feb-2017, Quantum AMC announced that it would start regular mutual fund plans where distributors can get commissions. MF distributors who has been supporting investors in recommending Quantum MF schemes are now asking investors to switch from direct plans to regular plans. This communication is creating mess to investor community. Should Quantum Mutual Fund investors switch from direct plan to regular plan Mutual fund schemes? What are the tax implications if they do not that?

Who is asking them to redeem the existing MF units and buy them again? Why this mess is being created by Quantum AMC and MF distributors? What investors should know from this so that they do not end up in paying income tax for the fault of some one else.

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About Quantum Mutual Fund Schemes


Quantum Mutual Funds are the only schemes which have offered to investors where no distributor commissions are paid. Means, they are offering only direct plans. There are no regular plans from Quantum all along. Distributors though recommending Quantum mutual fund schemes to investors, have not been getting any commissions.

What Changed now for Quantum Mutual Fund Schemes?


Quantum AMC has announced last month that it would offer mutual fund schemes where it would offer commission to investors.

  • Recently it indicated that current mutual fund schemes would be renamed as “Direct”.
  • New Mutual fund schemes would be issued with “regular” in the mutual fund scheme name.
  • Distributors would not have access any more to existing customers portfolio as they are now known as direct plans. As per SEBI guidelines, distributors cannot have access to direct plan records of the customers.
  • There are several large MF distributors including Fundsindia etc., to Quantum Mutual Fund schemes.
  • Some of the large MF distributors have started sending messages to existing Quantum investors to sell their existing schemes (which are direct plans now) and re-invest in “regular” plans in same mutual fund schemes. E.g. They need to switch from “Quantum long term fund – Direct Plan” to Quantum Long Term Fund – Regular plan”. This communication is confirmed by MINT.

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What are the implications of Switching between Quantum Mutual Fund Schemes direct and regular plans?


On face of it, it looks a simple switch. However, from investor point of view, it is a big mess created by both Quantum AMC + Mutual Fund Distributors.

An existing investors need to cancel the existing SIPs and create new SIP’s in regular plans.

Existing investors need to switch between regular plans to direct plans. For him / her it is simple switch, however there are tax implications with such switch which investors might not be aware.

If you have invested in Quantum equity funds more than 1 year back, then any long term gains are tax free. No income tax to be paid on this.

If you have invested in less than 1 year back or you are doing SIP’s, the returns from your existing SIP’s of less than 1 year, you need to pay short term capital gain tax.

What does FundsIndia say about this switch?


Srikanth Meenakshi, co-founder and CEO of Fundsindia which is largest distributor for Quantum MF Schemes, says “The fund house should have handled this better, by letting the existing plan remain as a distributor plan. A new plan should have been introduced as direct plan.”

What does Quantum AMC say about this?


Quantum Asset Management CEO, Mr. Jimmy Patel says “When we had launched, we had made it clear to all our investors that these are direct plans. Hence, we could not turnaround now and say that these are distributor plans and start charging higher fees (through distributor commission).”

Should Quantum Mutual Fund Investors Switch from Direct Plan to Regular Plans?


If you have invested in Quantum mutual fund Schemes, with this change, you cannot leave them open. It is important for investors to track the mutual fund schemes. Let us look at the 3 options available for such investors.

1) If your investments have not crossed 1 year or If you wish to continue to under direct plans, you can track them separately. You need to continue to monitor the performance of such schemes with independent view as distributor view would not be available.

Also read: Top Large Cap Mutual Funds to invest now

2) If your investments have crossed 1 year, there would not be any tax implications. Hence, you can switch from direct plan to regular plans so that all your mutual fund investments are under one umbrella with one distributor for easy tracking.

3) If you have invested less than 1 year and if still want your distributor to track such MF schemes, you can opt for Switch. Any switch between direct plans to regular plans is treated as if you are selling one mutual fund scheme and buying another one. Necessary short term capital gains would apply and you need to pay income tax on such capital gains.

Readers, what is your view on Quantum Mutual Fund decision? Do you see any other better alternatives?

If you enjoyed this article, share it with your friends and colleagues through Face book and Twitter.

Suresh

Should Quantum Mutual Fund Investors Switch from Direct Plan to Regular Plans

3 comments

  • ARUNKUMAR P G

    Thanks for making this article Suresh..much needed . These people realy created a mess now..I am investing in QMF for many years. I had a sip till last month. I have two questions

    1) If I switch now, I am not sure whether i have to pay tax for all the units i bought so far (or) only for the units which are less than one year old.

    2) Should I leave it as it is and wait for one year and then Switch?

    • Hi Arun, good to hear about you after long time. 1) Any equity MF returns for more than 1 year is tax free. Hence you need to pay short term capital gains for units bought < 1 year back 2) You can stop existing SIPs and continue and switch next year if you wish to do that. Here you need not pay any income tax as units are more than 1 year old

      • ARUNKUMAR P G

        Thanks for remembering me Suresh 🙂 .. I am regularly following you for years.. I Just don’t disturb you with too many questions :).

        Thanks for the explanation regarding QMF. Take care.

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