Is your mutual fund distributor letting you down? Here's how to switch
Tired of your mutual fund distributor ignoring your calls or providing subpar service? It's time for a change. But unlike switching grocery stores, changing your mutual fund distributor (MFD) comes with a few complexities. If not done correctly, your old distributor will continue to pocket commissions from your holdings. Here's how to ensure that doesn't happen.
When switching MFDs, you essentially have two paths: redeem your funds and invest with the new distributor, or transfer your existing schemes to the new MFD’s ARN code.
Read this | Dematerialising mutual funds: Is it worth the switch?
For years, the mutual fund industry has been a cozy ecosystem where distributors held a significant advantage. Switching distributors often meant selling existing holdings and reinvesting in new schemes, triggering capital gains taxes that could erode your returns. Moreover, distributors had little incentive to facilitate direct transfers without selling, as they received no commission revenue.
However, the landscape has shifted. Let's explore your options under the new rules.
Redeem and reinvest: This route involves selling your current mutual funds and purchasing new ones through the new MFD. While it might seem like a clean break, beware—selling triggers capital gains tax. Recent changes in tax laws have made this option even more costly. For instance, the capital gains tax on equity mutual funds was raised in this year's budget, which could significantly eat into your long-term returns.
Transfer existing schemes: Alternatively, you can transfer your funds directly to the new MFD without selling. However, this option had a significant drawback until recently. From 2010 to March 2024, neither the new distributor nor the old
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