Most investors usually switch their portfolios to meet changing financial goals or respond to fluctuating markets. Switching within the same fund house is via moving from one scheme to another. This way, investments can be maintained without manual redemption and reinvestment. Switching between mutual funds is an important way to optimize returns, manage risk, and balance a portfolio.
What do you mean by switching in mutual funds?
This is a switch in mutual funds-a switch of your investments from one scheme to another scheme, both providing the same asset management company (AMC). This involves redeeming units from the existing fund and using that amount to buy units of another scheme under the same AMC.
Say you are in a debt fund and would now like to shift over to equity. Switching investment is the way to go rather than withdrawing and reinvesting. The entire process is carried out seamlessly at the mutual fund platform or through your investment portal.
When Should You Consider Switching?
Switching should be a planned decision and not a knee-jerk reaction to short-term market moves. Here are the most common times switching makes sense:
- Goal-Based Change: You have changed your financial goal-from short to long term, in which case you switch from liquid fund to equity fund scheme.
- Portfolio Rebalancing: Market phenomena would typically distort your asset allocation, and through switching, you would realign your portfolio to the original ratio of equity and debt.
- Performance Review: If a fund persistently underperforms with respect to both its benchmark and peers, you can switch to another Mutual Fund Scheme whose fundamentals seem stronger.
- Tax Efficiency: Sometimes investors switch to gain the advantages of long-term capital gains benefits or to re-align into tax-saving strategies.
Switching should, in fact, be done based on your risk appetite, time horizon, as well as investment objectives.
How to Switch Between Mutual Fund Schemes
The process to switch between Mutual Funds is very simple. This can be done online or offline. Here is the online process:
- Log into your mutual fund account or investment app.
- Go on the “Switch” or “Change Scheme” section.
- Select the existing scheme you want to switch from.
- Get the target scheme under the same fund house.
- Indicate whether you want to switch all units or a certain quantity.
- Confirm the transaction.
Units in the new scheme are usually given within a few business days, depending on the fund type. Offline Process You can also switch through a switch request form submitted at the fund house or through your distributor. Give them details of both schemes and the number of units or amount you wish to transfer.
Things to keep in mind before switching
- Exit Load: There are funds that impose an exit load if the units are redeemed prior to a certain period. Check into this prior to switching.
- Tax Implications: Switch is characterized as redemption from one scheme and purchase in another. Probably short-term or long-term capital gains tax applies depending on the holding period and the fund type.
- NAV Calculation: The switch is made on the NAV, which is at the end of the day on which the application is made, as per the fund cut-off time.
- Fund Suitability: Ensure that the target Mutual Funds Scheme is suitable for your investment objective and risk profile.
Benefits of Switching
- Flexible: Makes your changing goals to easily change investments.
- Cost-Effective: Offers the opportunity of switching even within the same fund house without incurring any multiple transaction charges.
- Convenient: It can happen through the digital medium, where it does not need an act of redemptions and applications.
- Continuity: It keeps you invested, ensuring your money is in the market at all times.
Conclusion
This means that a person can switch between different mutual funds without modifying the portfolio and at the same time reshaping it according to the financial goals of the investor. It allows an investor to switch the funds within the same AMC without leaving the market. The consideration before switching includes; fund performance, exit load, and tax implication. Proper switching will make your Mutual Funds portfolio flexible, goal-oriented, and responsive to the dynamics of the market.
