How does switching work in Mutual Funds?

Jun 20, 2019

4 mins | Views 7174

Mutual fund schemes come in many variants. Each variant has a different investment strategy and also a different risk profile. When you choose a mutual fund scheme it is not necessary that you have to continue investing in the same scheme forever. If you want, you can change from one scheme to another. This changing of mutual fund schemes is called switching. Switching is done primarily for the following reasons –

If you want to move from equity fund to debt fund and vice-versa
If you want to move from dividend option to growth option of the same scheme
If you want to switch from a regular plan to a direct plan (it might attract an exit load)
If you want to switch to a fund giving better returns
If you want to consolidate your multiple mutual fund investments, etc.

You can switch your mutual fund investments whenever you want if there is no lock-in period involved. However, in case of ELSS schemes or close-ended mutual fund schemes which have a lock-in period, switching can only be done after the lock-in period is over. Moreover, here are some things to know about switching –

You can switch as many times as you want
You can switch from one fund to another fund of the same fund house.
Switching might include an exit load if you switch before a specified period as mentioned in the scheme information document
Tax implications could also be applicable on the amount switched
You can switch partially or fully as per your discretion.
There might be a minimum switch amount which you would have to switch

Now that you know what switching is, why it is done and the important points associated with it, let’s understand how you can switch. Switching can be done online or offline. Here are both the processes explained –

Online switching

Log into your mutual fund account using your user name and password
Go to the ‘Transaction’ option on the home page of your scheme
On the ‘Transaction’ page, choose ‘Switch’
You would be asked the amount and the fund to which you would like to switch. Furnish these details and other relevant details required. After the details have been entered, submit the switching request
The request would be sent to your fund house which would process it and do the switching
If you are switching and you place the request before 3 pm, you would get the same day’s NAV and the switching would be done on the same day. If, however, switching is done after 3 pm, switch would be done at the next working day’s NAV.
You can then login to your account again to check the status of your switching request

Offline switching

Visit the office of the mutual fund house or the Investor’s Service Centre (ISC) and avail a switch request form
Fill in the form providing all your portfolio details and the fund to which you want to switch
Submit the form and the mutual fund house or the ISC would process your request and do the switch

Switching of mutual funds is easy but you should understand the reasons why you want to switch and the tax implications before you switch.

Mutual Fund investments are subject to market risks, read all scheme related documents carefully.

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