Switching SIPs Between Funds: When, Why & How to Do It Right

Among the most sought-after investing options available to Indian investors is the Systematic Investment Plan, or SIP. This investment module helps you build disciplined wealth through frequent, small, and fixed-amount mutual fund investments. However, with time, your financial goals can change, calling for a rebalance of your portfolio.

Changing market conditions could also call for a revaluation of your investments. The best way to address the need is switching your portfolio. Shuffling your SIPs across funds makes more sense than discontinuing a current SIP and starting over. If you're considering reshuffling your portfolio but aren't sure how to approach it, continue reading.

Why You Should Consider Making the Switch

Before you think of shuffling your portfolio, make sure you do it for the right reasons. Here are some reasons why you should make the switch:

• If your fund hasn’t performed as expected in comparison to its competitors over a prolonged period, particularly when the market has been relatively steady.

• If there is a change in asset allocation due to changing life goals or risk appetite.

• If there is change in fund mandates or managers that could impact your estimated returns.

When to Make the Switch

Many people stop their present SIP and start making fresh fund investments. But this has disadvantages as well, so you need to know when the right time is to make that switch. Here are some pointers

• When there is a need to balance your portfolio in a fluctuating market

• When you notice that your returns might be affected due to your fund’s high expense ratio

• When there’s no diversification because you have too many similar funds.

• When you want to reduce your risk tolerance

How to Make the Switch

Evaluate the performance of your current SIP in comparison to other funds. If you feel the need to change, consider the following steps:

• Pause your old SIPs instead of cancelling them, this way you don’t miss compounding benefits

• Choose a different fund based on your financial goals, risk tolerance, and investment horizon.

• Start a new SIP immediately to ensure continuity of investment.

• Consider phasing out outdated units to manage your tax liabilities and reduce exit loads.

Conclusion

Switching SIPs is not about chasing results; it is about matching your financial choices with your objectives. It is a great strategy for maintaining a growth-oriented investment portfolio if it is done correctly. If you are unsure about making the appropriate choice for a smooth and tax-efficient transition, consider consulting a financial professional.

**SIP does not assure a profit or guarantee protection against loss in a declining market. The illustration mentioned above is not based on any judgements of the future return of the debt and equity markets / sectors or of any individual security and should not be construed as promise on minimum returns and / or safeguard of capital. Information gathered and material used in the above illustration is believed to be from reliable sources. ABSLAMC however does not warrant the accuracy, reasonableness and / or completeness of any such information. The illustration do not purport to represent the performance of any security or investments. Nothing contained herein shall amount to an offer, invitation, advertisement, promotion or sponsor of any product or services. In view of individual nature of tax consequences, each investor is advised to consult his / her own professional tax advisor before taking any investment decision.

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