What does switch mean in mutual funds?
Switching in mutual funds refers to the process of transferring investments from one mutual fund scheme to another within the same fund house. It allows investors to reallocate their investments based on changing market conditions, investment goals, or risk preferences. This can be done manually or automatically based on triggers you set, like moving from an equity fund to a debt fund when a market index hits a certain level. Essentially, it involves selling units of one fund and using the same amount to buy units in another.
When switching, it’s essential to consider exit loads (charges for redeeming units) and taxes, especially capital gains tax, if the units are sold before the required holding period. Additionally, switches can only be made within the same mutual fund house. Switching can be a good strategy when your goals or market conditions change, but it should be planned carefully to avoid unnecessary costs and taxes.
Switching in mutual funds allows investors to move from one scheme to another within the same fund house — ideal for rebalancing portfolios or aligning with changing financial goals. Mutual fund distributors or advisors can help investors understand when and how to switch to support long-term wealth creation and goal-based investing.
