A switch in a mutual fund moves an investment from one scheme, plan or option to another within the same asset management company (AMC). Although the process can be completed through a single request, it involves redeeming units from the existing investment and purchasing units in the selected investment.
Investors may consider switching when their goals, investment horizon, risk tolerance or desired asset allocation changes. Before submitting a request, it is important to assess the new scheme independently and account for exit load, capital gains tax and other applicable costs.
Key Takeaways
- A mutual fund switch generally moves an investment between schemes, plans or options offered by the same AMC.
- The transaction is treated as a redemption from the existing investment and a fresh purchase in the selected investment.
- Exit load and capital gains tax may apply even though the money is not credited to the investor’s bank account.
- A direct switch between schemes belonging to different AMCs is generally not available.
- Switching should be based on goals, risk, asset allocation and scheme suitability rather than short-term performance alone.
What is switching in mutual funds?
Switching is the process of moving all or part of an investment from one mutual fund scheme, plan or option to another within the same AMC.
For example, an investor may move from an equity scheme to a debt scheme when the investment horizon becomes shorter. A switch may also be made between the regular and direct plans of the same scheme after considering the cost, tax and advisory implications.
A switch is not necessarily a cost-free transfer. The units in the source investment are redeemed, and fresh units are allotted in the destination investment. Understanding this transaction structure is central to knowing what is switching in mutual funds.
How does switching work?
A mutual fund switch has two connected parts:
- The selected units in the existing scheme are redeemed at the applicable switch-out NAV.
- The resulting amount is invested in the destination scheme at the applicable switch-in NAV.
The switch-out is treated as a redemption, while the switch-in is treated as a purchase. The two sides may therefore be processed using different NAV rules.
A valid inter-scheme switch request is processed on the earliest day that is a business day for both schemes. The NAV depends on factors such as the transaction cut-off time, scheme type and availability of the switch proceeds for investment.
Source: AMFI guidance on applicable NAV for switch transactions.
Types of mutual fund switches
A switch may involve a change in the scheme, plan or investment option:
Switching between schemes of the same AMC
An investor may move from one scheme to another offered by the same AMC. This could include moving between equity, debt or hybrid schemes, subject to the terms of the source and destination schemes.
A direct switch between two different AMCs is generally unavailable. To make such a move, the investor must redeem the existing units and submit a separate purchase request to the other AMC.
Switching between direct and regular plans
Investors may be able to switch between the direct and regular plans of the same scheme. The underlying portfolio may be the same, but the plans have different expense structures.
A direct plan does not include distributor commission, while a regular plan is available through a mutual fund distributor. A switch between these plans is treated as a redemption and fresh purchase, so tax and exit-load implications should be checked.
Switching between Growth and IDCW options
An investor may be permitted to switch between the Growth and Income Distribution cum Capital Withdrawal (IDCW) options of a scheme. The two options handle distributable surplus differently and may have different tax implications.
The availability and process depend on the scheme documents and AMC facilities. Investors should assess which option suits their cash-flow requirements before switching.
Partial and complete switches
A partial switch moves a specified amount or number of units while leaving the remaining units in the source scheme. A complete switch transfers all eligible units.
The destination scheme’s minimum investment requirement and the source scheme’s minimum balance conditions may apply to a partial switch.
How to switch from one mutual fund scheme to another
A switch request can generally be submitted online or offline. The exact process may vary across AMCs and investment platforms.
Online method through the AMC’s website
Follow these steps to submit a mutual fund switch request through the AMC’s investor portal:
Follow these steps to submit a mutual fund switch request through the Bajaj AMC investor portal:
- Log in to the investor portal through the Bajaj AMC website.
- On the dashboard, click “Switch”.
- Select the folio, source scheme and destination scheme.
- Choose the investment mode: direct, regular or Registered Investment Adviser (RIA).
- Select the Growth or Income Distribution cum Capital Withdrawal (IDCW) option.
- Enter the amount you want to switch or select “Transfer All Units” for a complete switch.
- Review the transaction details and click “Submit”.
Offline method
Follow these steps to submit a mutual fund switch request offline and avoid processing delays:
- Obtain the switch request form from the AMC, registrar and transfer agent (RTA) or an authorised service centre.
- Enter the folio number and the source and destination scheme details.
- Specify whether the request is for a partial or complete switch.
- Sign the form according to the folio’s holding instructions.
- Submit it at an official point of acceptance and retain the acknowledgement.
Incomplete or inconsistent information may delay or invalidate the request.
Benefits of switching in mutual funds
Switching can help investors adjust an existing portfolio without first receiving the redemption proceeds in their bank account. It may be considered for:
- Restoring the intended allocation across equity, debt and other assets
- Aligning investments with a revised goal or investment horizon
- Moving to a scheme whose risk profile is more suitable
- Consolidating multiple holdings within the same AMC
- Changing between direct and regular plans after assessing the service and cost differences
These are practical uses of the facility, not assurances of better performance. The destination scheme remains exposed to market and scheme-specific risks.
When should you consider a mutual fund switch?
A switch may be considered when there is a clear investment-related reason, such as:
- Your financial goal or the date by which the money is required has changed.
- Your capacity or willingness to accept market fluctuations has changed.
- Market movements have taken the portfolio away from its intended asset allocation.
- The scheme’s investment strategy or risk profile no longer suits your requirements.
- The scheme has shown sustained underperformance against an appropriate benchmark and comparable schemes, after accounting for its strategy and market conditions.
- You have reviewed the differences between direct and regular plans and want to change how the investment is managed or serviced.
Short-term underperformance alone may not justify a switch. Recent returns can be influenced by market cycles, and moving after a decline may convert a temporary fall into a realised loss.
Factors to consider before switching in mutual funds
Review the following before submitting a switch request:
- Reason for switching: Identify the portfolio problem the switch is expected to address.
- Suitability of the destination scheme: Examine its investment objective, portfolio, Riskometer and suggested investment horizon.
- Performance in context: Compare performance over suitable periods against the benchmark and relevant peer category rather than relying on recent returns.
- Exit load: Check whether the units being switched remain within the source scheme’s exit-load period.
- Tax impact: Estimate the taxable capital gain or loss arising from the redemption of the existing units.
- Holding period: Remember that the holding period for the newly allotted units generally begins from their acquisition date.
- Minimum transaction conditions: Review minimum switch amounts, minimum units and residual-balance requirements.
- Costs and plan differences: Consider the expense structure and service model if switching between direct and regular plans.
- Lock-in: Confirm that the units are eligible for redemption before initiating the switch.
Tax implications of switching between mutual funds
A mutual fund switch is treated as a transfer of the units switched out. If their redemption value exceeds their acquisition cost, capital gains tax may apply.
The treatment depends on factors including:
- The tax classification of the source scheme
- The date on which the units were acquired
- The period for which they were held
- The amount of capital gain or loss
- The investor’s tax status and prevailing tax rules
Tax may apply when switching between schemes or between plans or options of the same scheme. This remains the case even when the proceeds move directly to the destination investment instead of passing through the investor’s bank account.
For the destination investment, the newly allotted units generally have a fresh acquisition date and cost. Their holding period does not continue from the source investment.
Source: AMFI guidance on the tax regime for mutual funds.
Tax treatment depends on individual circumstances and applicable law. Investors should consult a tax adviser before acting.
Is it better to switch or redeem mutual funds?
Neither method is inherently better. The appropriate route depends largely on whether the destination scheme belongs to the same AMC.
| Factor | Switch | Redeem and reinvest |
| Destination | Generally another scheme, plan or option within the same AMC | May be a scheme within the same AMC or a different AMC |
| Transaction process | Submitted as one switch request | Requires separate redemption and purchase requests |
| Movement of money | Proceeds usually move directly to the destination scheme | Redemption proceeds are generally credited to the registered bank account before reinvestment |
| Tax treatment | The switch-out is treated as a redemption | The redemption may result in capital gains or losses |
| Exit load | May apply to the source units | May apply to the redeemed units |
| Time outside the market | Generally reduced through an intra-AMC switch | May arise while waiting for redemption proceeds |
If the destination scheme belongs to another fund house, redemption followed by a separate purchase is generally required. Before choosing either route, compare suitability, timing, taxes and costs.
What are mutual fund switch charges?
AMCs generally do not levy a separate mutual fund switch charge merely for submitting a switch request. However, the transaction can involve other costs:
Exit load
An exit load may apply when units are switched before the period specified by the source scheme. It is deducted from the applicable redemption value.
The rate and applicable holding period vary by scheme. Investors should review the Scheme Information Document or latest scheme disclosures rather than assume that every switch is free.
Capital gains tax
Capital gains tax may apply when the switch-out results in a taxable gain. This is a tax consequence rather than a fee charged by the AMC.
Securities transaction tax
Securities transaction tax may apply to the redemption or repurchase of units of an equity-oriented fund according to prevailing rules.
Stamp duty
Stamp duty may apply to the purchase component through which units are allotted in the destination scheme.
The combined impact of these mutual fund switch charges and taxes should be assessed before proceeding.
Mutual fund switch rules
The main rules and conditions to keep in mind are:
- A switch is generally available only between eligible schemes, plans or options belonging to the same AMC.
- The source units must be available for redemption and free from an applicable lock-in.
- The destination scheme must be open for subscriptions and eligible to receive the switch.
- The switch must meet the minimum transaction and balance requirements stated in the scheme documents.
- A switch-out is processed as a redemption, while a switch-in is processed as a purchase.
- The source and destination sides may receive different NAVs under the applicable transaction rules.
- Exit load and tax may apply to the units switched out.
- The holding period for the destination units begins afresh from their allotment or acquisition date.
- Units purchased through different transactions may have separate acquisition dates and exit-load periods.
These are general principles. The applicable Scheme Information Document, Statement of Additional Information and AMC transaction rules should be checked before placing a request.
Conclusion
A switch in a mutual fund can help realign an investment with a changed goal, horizon, risk tolerance or asset allocation. It can also provide an operationally convenient way to move between eligible schemes, plans or options within the same AMC.
Convenience does not remove the financial consequences. A switch involves redemption of the source units, so exit load, taxes and NAV rules may apply. Review the destination scheme on its own merits and proceed only when the change supports your broader investment plan.
FAQs
Can I switch between different types of mutual funds?
Yes, you may be able to switch between eligible fund types offered by the same AMC, such as from an equity scheme to a debt scheme. A direct switch between different AMCs is generally not available.
How long does a mutual fund switch take to process?
The processing time varies with the source and destination schemes, business days, transaction cut-off time and availability of the switch proceeds. Check the transaction status through the AMC or RTA rather than relying on a fixed timeline for every switch.
Can I make a partial switch in a mutual fund?
Yes, many schemes allow investors to switch a specified amount or number of units. The request must meet the source scheme’s minimum balance conditions and the destination scheme’s minimum investment requirement.
Can I switch mutual funds during a lock-in period?
No. Units that remain under a lock-in cannot ordinarily be redeemed or switched. For investments made in instalments, such as an SIP in an ELSS, each allotment has its own lock-in period.
Can I cancel a mutual fund switch request?
A switch request may be cancelled only if the AMC or platform permits cancellation before the applicable processing cut-off. Once the transaction has been accepted for processing, cancellation may not be available.
Does switching a mutual fund stop the existing SIP?
Not necessarily. Switching existing units and continuing future SIP instalments are separate instructions. Unless the SIP is modified or cancelled, future instalments may continue in the original scheme.
Can I switch all my units from one scheme to another?
Yes, a complete switch may be requested if the units are eligible for redemption and the destination scheme is accepting investments. Exit load and tax may still apply.
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