Big Update for Mutual Fund Investors: No Exit Loads on Switch from Regular to Direct Plans

Mutual fund investors typically choose between regular plans, which involve intermediaries and commissions, and direct plans, where investments are made directly with the AMC, often resulting in lower costs due to the absence of distributor commissions.

Read More: Direct vs Regular Mutual Fund: Know The Difference. 

What Are Exit Loads?

Exit loads are charges levied by fund houses when investors redeem or switch out of a mutual fund within a predefined period. In the case of regular plans, these loads often covered distributor commissions, especially in earlier years when upfront commissions were common.

SEBI Observes Continued Charging of Exit Loads

Although upfront commissions were discontinued in 2018, SEBI noted that several AMCs continued to charge exit loads on switches from regular to direct plans. This was seen as a deterrent to investor migration towards more cost-efficient direct plans.

AMFI Circular: Standardising Industry Practice

In response to SEBI’s guidance, AMFI issued a circular to all fund houses instructing them not to charge exit loads on switches from regular to direct plans. This aligns industry practices with SEBI's investor-first approach.

Fund Houses Asked to Issue Addendums

SEBI has also directed AMCs still following the outdated practice to issue addendums and fully comply with the updated norms. This step is aimed at promoting transparency and consistency across the mutual fund industry.

Conclusion

With this update, mutual fund investors can now switch between regular and direct plans without incurring any exit load, regardless of the direction of the switch. This reinforces ease of access and encourages informed decision-making.

Disclaimer: This blog has been written exclusively for educational purposes. The securities mentioned are only examples and not recommendations. This does not constitute a personal recommendation/investment advice. It does not aim to influence any individual or entity to make investment decisions. Recipients should conduct their own research and assessments to form an independent opinion about investment decisions. 

Mutual Fund investments in the securities market are subject to market risks, read all the related documents carefully before investing.