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

Switching from Regular to Direct can be one of the cleanest cost reductions in a mutual fund portfolio. The fund does not become more aggressive or conservative; the portfolio remains the same. What changes is the expense ratio.

The execution still needs care. A switch is usually treated as a redemption followed by a purchase, so tax, exit load, short-term units, and ELSS lock-ins matter.

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 want someone to look at the actual folios before you press switch, find a fee-only investment advisor.

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 is that spreading the redemption can help you:

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 the Regular plan and buy the Direct plan immediately. Many AMC portals call this a switch, but for tax purposes it still behaves like a redemption and purchase.

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 one-time tax cost has to be compared with the future TER saving. On a ₹25L corpus with a 1% TER gap, the saving starts around ₹25,000 a year and grows with the corpus. The break-even can be under two years, but only if the assumptions fit your folio.

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.

For locked ELSS units, the only option is to wait. Once units complete three years from their purchase date, they become redeemable or switchable. SIP instalments have separate lock-in dates, so check the detailed folio statement before assuming the whole ELSS folio is free.

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 thinking "I'll switch next year", put a number on the delay. On a ₹30 lakh corpus with a 0.9% TER gap, one year of waiting is roughly ₹27,000 in extra expense drag. That does not mean everyone should switch today, but it does mean delay has a cost.

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 generally processed within the normal fund settlement timelines, often T+1 to T+3 depending on the scheme. Use MF Central or the AMC portal directly; you do not need the distributor's involvement to place the 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 your portfolio has ELSS lock-ins, multiple AMCs, recent SIP units, and large unrealised gains, map the switch sequence before acting. The right order can reduce unnecessary tax and avoid restarting lock-ins.

Want a fee-only SEBI RIA to give you a sequenced, tax-optimised Regular-to-Direct switch plan for your actual folios? Find a Fee Only Investment Advisor →