How to shift your MF portfolio from an MFD to an RIA
Published by Mint
Abhishek Kumar's role: Quoted
Abhishek Kumar explained that a unit-level FIFO review can find units that can move without tax, and suggested redirecting SIPs first and phasing switches of high-gain units over 12 to 18 months for large portfolios.
What Abhishek Kumar said
How can you find mutual fund units that can be switched to a direct plan without tax?
I suggest a unit-level review using first in, first out, the order in which units are treated as sold. It shows which units have no gain at all or are currently at a loss. Those tax-neutral units can be moved straight away without creating any tax liability, so they are the natural place to start the shift from a regular to a direct plan.
How can tax-loss harvesting help while moving a portfolio to direct plans?
Investors can use tax-loss harvesting as part of the move. I would sell the schemes that are underperforming or sitting at a loss and set those losses against the gains booked on the profitable ones. That way, the losses help reduce the tax that the switch from regular to direct plans would otherwise trigger.
How should a large mutual fund portfolio be moved to direct plans?
For a corpus running into several crores, I suggest spreading the redemptions over 12 to 18 months, which helps keep exit loads and short-term capital gains tax in check. Start by stopping SIPs in regular plans and redirecting them to direct plans. Then move loss-making or stagnant units first, and switch high-gain units in phases to use the yearly ₹1.25 lakh exemption then available on long-term equity gains, clearing out overlapping or underperforming schemes along the way.
In our words, from what he said in the piece. General information, not personal advice.
More of Abhishek's views on choosing an adviser
Mint explains how investors can move mutual fund holdings from a distributor to a fee-only registered investment adviser. It covers switching from regular to direct plans, why a switch is taxed as a sale, routes for making the switch and ways to manage capital gains while doing so.
Publisher source
How to shift your MF portfolio from an MFD to an RIA