How to shift your MF portfolio from an MFD to an RIA

For investors keen to move from commission-based mutual fund advisory to fee-only advice, a common question is: How can I shift my portfolio from a mutual fund distributor (MFD) to a registered investment adviser (RIA) without disrupting investments or triggering avoidable taxes?The shift essentially involves moving from a regular plan, where commissions are built into the expense ratio, to a direct plan, which excludes distributor commissions and typically has lower costs. In the latter, you pay a fixed fee to the RIA.Investors broadly have two options.

First, switch the regular plan to a direct plan for the same fund. This is treated as a redemption from the regular plan and a fresh investment into the direct plan of the same scheme.Praveen Shankaran, chief operating officer, domestic fund services, KFintech, said MF units cannot be transferred or re-tagged directly from regular to direct because the plan type is embedded in the scheme structure.

“A switch is effectively a sell-and-buy transaction within the same folio. Hence, it is considered a taxable event,” he said.Most asset management companies allow switching from regular to direct plan within the same scheme and typically do not attract exit loads, though scheme-specific terms must be checked.

“The benefit in this option is that investors need not redeem and open a new folio. However, even within the same folio, a switch is technically treated as redemption and attracts capital gains tax,” said Shankaran.The only non-taxable route is to stop ongoing SIPs in regular plans and restart them in direct plans of the same schemes.