How to Switch Mutual Funds? Everything You Need to Know
Funds are switched when transferred from one investment plan to another. Investors can switch between two distinct schemes, whereby money is removed from fund A by placing a sell order and invested in fund B. a purchase order. You will get several benefits when you switch to a mutual fund. When your goals are altered or attained, that is the first sign. Take your money out, for example, if you have been investing for a long time, perhaps for retirement or upgrading your car. The most popular investment approach is, by far, this one. Using this technique, you will buy your investments and keep them for a very long time, regardless of whether the markets are rising or falling.
What is the Meaning of Switching Mutual Funds?
Investing in a mutual fund differs from investing in a stock or bond portfolio. Sometimes the value of a fund can drop if it isn't doing well or if you simply don't want to accept the risk. Under these circumstances, you can choose the alternative of switching. You'll need to liquidate your current mutual fund's holdings before you may buy units in the new fund.
When Should You Consider a Mutual Fund Switch?
The following possibilities exist:
- The transition from debt to equity funding or the other way around.
- If you're considering making the change from conventional to direct funding.
- You should select a fund with higher returns if you want to maximize your investment.
- For those interested in switching from a growth to a dividend fund.
Filling out a switch form or submitting a letter with switch details might request a switch. Investors must choose the mutual fund scheme, plan, and option for switching units.
How to Switch Mutual Funds?
Switching Within Same Mutual Fund Scheme
Switching within the same mutual fund house requires a switch form. List the mutual fund scheme units to be transferred in that switching form. Switch-in and switch-out need low investment. Consider exit load and capital gains tax while switching. Switching within the same fund house has no settlement issues.
Switching Within Different Mutual Fund Schemes
You sell your mutual fund investment and buy another when you move schemes. Redeem the initial fund and wait for the funds to arrive in your bank account. Consider taxes and exit loads when redeeming assets. After obtaining credits from the first mutual fund, complete the Mutual Fund Scheme application to reinvest the proceeds.
Important Considerations When Switching between Mutual Funds
After learning how to switch, you should also know what to consider before switching.
Tax
Mutual fund transactions incur short-term or long-term capital gains tax. Switching funds or schemes is redemption. Suppose you go from regular to direct. The tax is levied since switching constitutes redemption. The table below displays long-term and short-term fund tax rates:
| Fund Type | Holding Period | Capital Gains Tax Rate |
|---|---|---|
| Debt fund | Short term – Less than 3 years | As per Income tax Slab rates |
| Debt fund | Long-term – 3 years and above | 20% with indexation |
| Equity fund | Long-term - More than 1 Year | 10% |
| Equity fund | Short term - Less than 1 year | 15% |
A hybrid fund's tax rate will be the same as that of an equity fund if more than 65 percent of its assets are invested in equity mutual funds.
Exit Load
This measures the investor's commitment to a specific mutual fund unit as a proportion of its Net Asset Value. Asset management companies impose this cost whenever their clients redeem or sell mutual fund units. In this case, AMC will deduct the exit load fee from the proceeds of the sale of your mutual fund units and credit you the remaining amount. When deciding between mutual funds, you must consider the exit penalty you'll have to pay if you sell during the lock-in period.
Lock-in Period
If you invest in a mutual fund with a lock-in period, such as the Equity Linked Savings Scheme (ELSS), you will not be allowed to make a change for three years. You can't get your original investment back, but you can terminate a standing instruction at any time.
Switching from one fund to another can be done electronically or manually. You can switch between mutual funds as often as you like and for whatever percentage. Although it is ultimately up to you, you should think about the extra tax and exit costs you'd have to pay if you decide to make a transfer.
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Conclusion
Switching mutual funds enable investors to transfer between various funds. This flexibility to switch funds can be a helpful tool for investors who wish to leave their choices open. Investors can switch mutual funds without selling their shares and paying capital gains taxes, which allows them to change their investment approach. A switch fund investment organisation takes money from several investors and buys equities, bonds, and short-term debt. Mutual funds' portfolios are their holdings. The fund's assets and earnings are divided among investors who buy shares. Investors receive gains or losses.
Is mutual fund switching a good idea?
Exit loads may apply if you switch from your current portfolio of standard mutual funds to a direct fund plan. So, before making a transition, it is suggested that you make sure you are aware of the exit loads that apply to your investments.
How can I change my mutual fund online?
Yes, it is possible to change your mutual fund online. All you need to do is to access your mutual fund account by logging in - either the AMC offers it, or you can do so through organizations like CAMS or KARVY. Go to the transaction page to purchase, modify, or redeem your fund units. After clicking on the appropriate fund name, choose the switch option.
Is switching of mutual Funds taxable?
Yes, the investor must pay capital gains tax if he decides to switch schemes.
How to switch sip from one fund to another?
Fill out a transaction sheet on the fund house's website to switch to a new scheme. Account statements have the same slip. Fill out this slip and bring it to a fund house branch.