How to Switch from Regular to Direct Mutual Fund Plans (STP vs Redeem-Rebuy)

Switching from Regular to Direct is the highest-return, zero-additional-risk move available to most Indian mutual fund investors. The math is simple: you stop paying 0.7–1.3% per year in expense ratio drag. The execution has two routes — each with different tax and timing implications — and one major caveat if you hold ELSS. Here is the full picture.

The Two Routes: STP vs Redeem-and-Rebuy

A switch from Regular plan to Direct plan of the same fund is treated as a redemption + fresh purchase by SEBI and the Income Tax Act. There is no "transfer" that preserves your cost basis. Every switch is a taxable event. The question is how to structure it.

If you'd rather have a fee-only advisor walk you through this, book a free portfolio audit.

Route 1: Systematic Transfer Plan (STP)

An STP moves a fixed amount from your Regular plan (the "source" folio) to the Direct plan of the same or a different fund (the "target" folio) in weekly or monthly tranches over a period you define.

How tax plays out with an STP:

Each STP instalment is a separate redemption from the Regular plan. Units redeemed after 12 months of purchase are Long-Term (12.5% LTCG on gains above ₹1.25L). Units redeemed before 12 months are Short-Term (20% STCG). If you bought your Regular plan units via SIP over 5 years, the oldest units have the lowest cost basis — they are fully long-term and taxed at 12.5%. Newer units (last 12 months) are short-term if redeemed now.

The STP advantage: by spreading the redemption over 12 months, you can:

1. Use the ₹1.25L LTCG annual exemption in the current FY and the next FY.
2. Allow recently purchased units (within 12 months) to cross the 12-month threshold before being redeemed, converting STCG to LTCG.

Concrete example:

Corpus in Regular plan: ₹25 lakh. Total unrealised gain: ₹12 lakh. Recent 12 months of SIP purchases (taxable as STCG): ₹3.6 lakh corpus.

If you do a 12-month STP starting June 2026:

• Units older than 12 months: ₹21.4L corpus → LTCG applies
• ₹1.25L LTCG exempt in FY 2026-27, ₹1.25L exempt in FY 2027-28 → up to ₹2.5L of gain tax-free
• By March 2027, the June 2026 SIP units become long-term
• Net LTCG tax roughly 12.5% on (₹12L − ₹2.5L exempt) = approx ₹1.19L in tax

Vs a lump-sum switch today: 12.5% on (₹12L − ₹1.25L) = approx ₹1.34L in tax. Saving by doing STP: ~₹15,000. More importantly, no STCG at 20% on the recent units.

Route 2: Redeem and Rebuy (Lump-sum Switch)

You redeem everything from the Regular plan today and use the proceeds to buy the Direct plan immediately.

When this makes sense:

• Your corpus is entirely long-term (all units older than 12 months)
• You have significant carry-forward capital losses to offset the gains
• The TER gap is large (e.g., 1.2%+ on an active fund) and your horizon is 10+ years
• You have already used your ₹1.25L LTCG exemption this FY from other holdings

Tax cost of redeem-and-rebuy on a ₹25L corpus with ₹12L total gain:

LTCG = ₹12,00,000
Less exemption = ₹1,25,000
Taxable LTCG = ₹10,75,000
Tax at 12.5% = ₹1,34,375

That ₹1.34 lakh one-time tax cost is recouped by the TER saving in under 2 years on a ₹25L corpus with a 1% TER gap (saving = ₹25,000/year rising with corpus growth). The break-even is approximately 16–20 months.

Choosing Your Route

Factor	Lean STP	Lean Redeem-Rebuy
Short-term gains in folio	Yes — STP lets them age	No short-term units
Current FY LTCG exemption	Partially used	Unused ₹1.25L available
Horizon remaining	7+ years	5+ years
TER gap	Under 0.8%	Over 1.0%
Carry-forward losses available	No	Yes

ELSS Lock-In: The One Hard Exception

ELSS (Equity Linked Savings Scheme) units under a 3-year lock-in cannot be switched, redeemed, or transferred before the lock-in expires. You cannot do an STP out of a locked ELSS folio. You cannot place a switch request on locked units. The AMC will reject it.

Your only option is to wait. Once units complete 3 years from the date of purchase, they become redeemable. Switch them to the Direct ELSS variant at that point. ELSS units purchased via monthly SIP have different lock-in dates for each instalment — check your folio statement for unit-wise purchase dates.

One practical approach: stop SIP into the Regular ELSS now. Start a new SIP into the Direct ELSS. This ensures all new purchases go Direct while the locked Regular units age out naturally. ELSS units older than 3 years that you redeem and switch will trigger LTCG — same math as above.

Step-by-Step: How to Switch on Each Platform

MF Central (mfcentral.com)

MF Central is the SEBI-mandated central platform for mutual fund servicing. It allows switches across AMCs in one place.

1. Log in at mfcentral.com with your PAN and OTP.
2. Select "Service Requests" → "Switch".
3. Choose the folio and source scheme (Regular plan).
4. Select the target scheme (same fund, Direct plan, same AMC).
5. Enter the amount or number of units to switch.
6. Confirm with OTP.

MF Central supports most major AMCs. A few smaller AMCs are not yet onboarded — check the list on the platform before assuming.

AMC Website (Direct)

Every AMC's investor portal allows switches within the same fund house:

• HDFC MF: investonline.hdfcfund.com
• ICICI Prudential: mutualfund.icicipruamc.com
• Mirae Asset: miraeassetmf.co.in
• Parag Parikh: ppfas.com/mf

Log in → Portfolio → Switch → Select source and target scheme → Confirm.

Important: AMC portals only allow switches within that AMC's funds. You cannot switch Nippon Small Cap to Motilal Oswal Direct via HDFC's portal.

Zerodha Coin

Coin shows your existing Regular plan holdings (if imported via CAS). It does not allow switching out of Regular plans purchased through other platforms — it can only transact in holdings placed through Coin itself. For externally held Regular plans, use MF Central or the direct AMC portal.

Kuvera

Kuvera offers a "Regular to Direct" migration flow under Settings → Portfolio → Migrate to Direct. It initiates the switch requests in bulk across AMCs. Note: the migration places individual switch/STP requests per AMC — it is not a single transaction.

After the Switch: What Changes, What Does Not

Once the switch is processed (T+1 to T+3 days depending on AMC):

• Your Regular plan folio reflects the redemption; units are credited to a new Direct plan folio (or an existing one if you already had one).
• Your investment history and SIP standing instructions on the Regular plan are separate from the Direct plan — you must set up a fresh SIP on the Direct plan if you want to continue.
• Your ARN code on the folio changes from the distributor ARN to "ARN-0" (Direct).
• CAMS / KFintech update your CAS to reflect the new Direct folio.
• Tax treatment of the newly purchased Direct plan units starts fresh from the switch date.

The Cost of Waiting

If you are reading this and thinking "I'll switch next year", consider: on a ₹30 lakh corpus with a 0.9% TER gap, waiting 12 months costs approximately ₹27,000 in extra expense ratio drag — guaranteed, regardless of market returns. The LTCG tax you are deferring is a one-time event; the TER drag recurs every year. See the full cost analysis on the Direct vs Regular hub.

FAQ

Can I do an STP from a Regular plan to a Direct plan of a different fund?

Yes, but this is technically an "inter-scheme switch with plan change". The tax treatment is identical — each STP instalment is a redemption from the source scheme. Most AMCs support this via their portals and MF Central. If you want to switch funds entirely (e.g., from a Regular large-cap active fund to a Direct Nifty 50 index fund), you can combine the plan change and fund change in one switch request.

What happens to my dividends / IDCW reinvestment units in the Regular plan?

Reinvested IDCW units have their own purchase dates and cost basis. They are switched along with everything else, and each unit's holding period is calculated from its reinvestment date. In practice, older dividend-reinvested units are long-term and taxed the same as regular purchased units.

My distributor says the switch will take 30 days. Is that true?

No. Switch requests are processed at T+1 to T+3 settlement days by SEBI mandate. The "30 days" claim is not accurate — distributors sometimes tell this to delay switches because the switch removes their trail commission. Use MF Central or the AMC portal directly; you do not need the distributor's involvement to switch.

I have 12 different Regular plan folios across 5 AMCs. Is there a way to do this in bulk?

MF Central allows multi-folio switch requests in one session. Kuvera's migration tool also handles bulk switches. If your portfolio is complex — multiple AMCs, mixed ELSS and non-ELSS, some units within 12 months — running through the Switch Cost Calculator first will show you the optimal sequencing (which funds to switch immediately vs via STP).

If you have a complex portfolio — ELSS units at various lock-in stages, multiple AMCs, a mix of long-term and short-term units — mapping the optimal switch sequence by tax cost is worth 30 minutes with a fee-only advisor who can see your full CAS.

Want a fee-only SEBI RIA to give you a sequenced, tax-optimised Regular-to-Direct switch plan for your actual folios? Get a free portfolio audit →