BackDYK: You can switch between mutual fund schemes, but it comes with a time lag
When switching, bear in mind the amount and date on which you are allotted units in the new scheme
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There are three basic actions that you do with a mutual fund (MF) scheme—buy, hold or sell. A switch from one scheme to another is an extension of a decision to sell and buy. In MF parlance, a switch is when you transfer your money from one scheme to another within the same fund house. If, however, you move money from one fund house to another, it won’t be called a switch, though technically, you would be ‘switching’ money. When switching, bear in mind the amount and date on which you are allotted units in the new scheme.
T+n number of days
Before we go ahead, there are two things you need to remember. One, if you invest 2 lakh or more in any scheme, except a liquid fund, the MF will allot you units only when it gets your money. For less than 2 lakh, you will get units on the day you submit your application (assuming that you submit it before the relevant cut-off time). Second, when it comes to redemption, if you redeem from a debt fund and liquid fund, you will get money on a T+1 basis. ‘T’ stands for transaction day. For equity funds, redemption will happen on T+3 basis.
Now apply the same logic to switching from one scheme to another. If you switch from a debt fund to an equity fund and if the amount is less than 2 lakh, your equity fund will allot you units on the same day that you submit the switch request, assuming you give your request by 3pm. If the amount is above 2 lakh, then the equity fund units will be allotted to you on the next day as it takes a day for the money to move out of a debt scheme.
Let’s take another scenario. Say, you want to switch money from an equity fund to a debt fund. Again, if the amount is less than 2 lakh, then the debt fund will allot you units on the same day on which you submit your switch request, even though redemptions from equity funds are done on a T+3 basis. The assumption here is that you submitted the switch request before the cut-off time of 3pm. Your money starts working for you in the debt fund immediately, even though it takes three days for it to actually move from the equity to the debt fund. But again, if the amount is 2 lakh or more, then there will be a lag of three days before the debt fund allots you units. So, if your amount is 2 lakh or more, do not worry if there is a lag between when you took it out of your equity fund and put it in a debt fund.
For switches (within a fund house) there is a separate ‘switch’ form that you need to fill.
Beyond the fund house
If you move money from one scheme to another in different fund houses, then you need to redeem the money first and then separately fill in the ‘application’ form in the fund house where you wish to move your money to. Unlike switches made within a fund house, your money will come in your bank account before it moves to the new fund house. When switching from one scheme to another, do keep in mind exit loads. You might also need to pay capital gains tax.
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