Switch Mutual Fund Schemes for Better Returns
6 August, 2024
Synopsis
Switching mutual funds allows you to move investments from one scheme to another within the same fund house. Switching helps in exiting underperforming schemes, and entering ones that are aligned with your investment objectives. With right choices, switching can result in higher returns.
Key scenarios for switching include consistent underperformance, change in investment style, fund manager changes, profit booking, or for simplification of portfolio.
The HDFC Bank SmartWealth App streamlines the switching process by offering a user-friendly interface for full or partial switches.
Meera and Nisha both are mutual fund investors for a long time. Meera started her investment journey about three years ago, while Nisha has been doing it for five years now. One day, while walking to the gym with Nisha, Meera decided to discuss her problem with the senior pro.
Meera: A few of my mutual fund schemes are not performing well; I think I made the mistake of investing in these schemes in a hurry.
Nisha: Don't worry, Meera; you can easily switch to better-performing schemes of the same fund house if needed.
Meera: Seriously but how? What is switch in mutual funds?
Nisha: Switch in mutual fund means you can move your investment from one scheme to another within the same mutual fund house.
For example, you can switch your units in Scheme A, managed by XYZ Mutual Fund, to Scheme B, managed by the same AMC.
Did you know Switching between mutual fund schemes presents several advantages?
● Exiting underperforming funds to enhance portfolio returns.
● Aligning investments with your investment objectives.
When nearing your objectives, switching from equity to a debt mutual fund scheme helps preserve wealth.
Meera: So, I can switch mutual fund schemes without selling. But when should one switch?
Nisha: Here are some scenarios when switching schemes can be useful:
The existing mutual fund scheme's performance falls consistently over 2-3 years.
Your investment appetite changes.
A change in fund manager.
You want to book profits by switching to a debt mutual fund scheme.
You wish to merge your multiple funds into one for operational simplicity.
Most importantly, you may consider a switch when you think the mutual fund scheme's performance is no longer in sync with your investment target.
Meera: Makes sense! Can I switch part of my investment to a new mutual fund scheme?
Nisha: Yes, you can fully or partially switch units from one scheme to another based on your needs. The process is quite easy. The HDFC Bank SmartWealth App makes it even simpler.
Meera: Great to know! Can you explain the process on the SmartWealth App?
Nisha: Sure, here are the simple steps to switch mutual fund schemes on the HDFC Bank SmartWealth App:
Log in and go to your dashboard.
Select the mutual fund scheme you want to switch from.
Click on 'Switch' under Quick Actions and select the destination scheme.
Choose full or partial units you want to switch.
Select the switch date and payment mode.
Preview and submit the switch request after OTP validation.
That's it! The platform makes it absolutely seamless to switch mutual fund schemes.
Meera: Amazing! Last question, what are the tax implications of switching?
Nisha: The good part is there is no capital gains tax when switching debt mutual fund schemes held over 3 years or equity mutual fund schemes held over 1 year. For debt mutual fund schemes held under 3 years and equity mutual fund schemes under 1 year, short-term capital gains tax as per your tax slab applies.
Meera: Wow! It's time to relook at my portfolio.
FAQs
When should you switch mutual fund schemes?
When the existing scheme underperforms consistently, your investment profile changes, the fund manager changes, or you want to book profits by switching to a debt mutual fund scheme.
Can you make a partial switch to a new fund scheme?
Yes, you can choose to fully or partially switch units from one mutual fund scheme to another based on your investment needs.
Is it better to switch or redeem mutual funds?
When deciding whether to switch schemes or place a redemption request in mutual funds, consider that switching directly invests the money into the new scheme. In contrast, redemption credits the money to your account, allowing you to invest the proceeds in a different scheme later.
Is mutual fund scheme switch taxable?
Regarding the taxation of mutual fund scheme switches, they incur the same tax effects as withdrawals or redemptions of mutual fund units. Fund houses may deduct taxes for short and long-term capital gains generated from the redemption of mutual fund units.
What is switch in and switch out in mutual funds?
When you transfer your investments from mutual fund schemes of one fund house to those of another, you engage in switch-out and switch-in. This process involves redeeming your investment from the first mutual fund scheme and reinvesting in a different mutual fund scheme.
Disclaimer: This communication has been prepared on the basis of publicly available information, internally developed data and other sources believed to be reliable. HDFC Bank Limited ("HDFC Bank") does not warrant its completeness and accuracy. This information is not intended as an offer or solicitation for the purchase or sale of any financial instrument / units of Mutual Fund. Recipients of this information should rely on their own investigations and take their own professional advice. Neither HDFC Bank nor any of its employees shall be liable for any direct, indirect, special, incidental, consequential, punitive or exemplary damages, including lost profits arising in any way from the information contained in this material. HDFC Bank and its affiliates, officers, directors, key managerial persons and employees, including persons involved in the preparation or issuance of this material may, from time to time, have investments / positions in Mutual Funds / schemes referred in the document. HDFC Bank may at any time solicit or provide commercial banking, credit or other services to the Mutual Funds / AMCs referred to herein.
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