Investors select mutual fund schemes based on the options available and their investment goals. However, preferences change over time or we find better options over time. In such cases, can you switch mutual funds? If yes, then what are the mutual fund switch rules? Let’s find out!
What is a mutual fund switch?
Mutual fund switching usually refers to the transition between equity and debt mutual funds or switching from regular to direct mutual funds. This helps you align your risk or enhance your returns based on your latest investment goals and preferences.
Investors often switch their investments from one scheme to another within the same fund house for better financial planning. To do this, fill out a switch form specifying the amount or number of units to switch from the source scheme to the destination scheme. Ensure you meet the minimum investment amount criteria for both the switch-in and switch-out schemes.
When you switch funds from one fund house to another, it's like selling your investments in one fund and reinvesting in another. You can redeem your investment from the first mutual fund and wait to receive the proceeds in your bank account. Then, fill out the application form for the mutual fund where you wish to reinvest once you receive the funds from the first investment.
Why switch mutual funds?
- If you feel that the current scheme is highly risky or there is a lot of volatility associated with your units, you can consider switching the mutual fund scheme to a scheme with lower risk. For example, from equity fund to a debt fund.
- If you wish to improve the returns of your portfolio, you can consider switching your mutual fund scheme.
- If you wish to move from growth to dividend fund
- If you want to make switch from regular to direct fund.
Things to consider before switching mutual funds
- Determine switch type: Begin by determining whether you wish to switch from one scheme to another of same fund house or a different fund house.
- Exit load: It is a fee levied by fund houses when investors redeem their mutual fund units before a specified period.
- Consider taxes: Learn about the tax implication on switching mutual funds. It can include Short Term Capital Gains (STCG) or Long Term Capital Gains (LTCG) tax.
Also Read: Unlocking the magic of money: How SIPs boost your savings!
In a nutshell
Switching a mutual fund becomes important if you are not satisfied with the performance of the current scheme or if you find a better alternative. However, it is important to switch to the right fund, so your investments align with your goals.
Disclaimer: This article is for information purpose only. The views expressed in this article are personal and do not necessarily constitute the views of Axis Bank Ltd. and its employees. Axis Bank Ltd. and/or the author shall not be responsible for any direct / indirect loss or liability incurred by the reader for taking any financial decisions based on the contents and information. Please consult your financial advisor before making any financial decision.
Mutual Fund investments are subject to market risk, read all scheme related documents carefully. Axis Bank Ltd is acting as an AMFI registered MF Distributor (ARN code: ARN-0019). Purchase of Mutual Funds by Axis Bank’s customer is purely voluntary and not linked to availment of any other facility from the Bank. T&C apply.
