How does the switch option among funds work? What are the advantages and disadvantages of this option?-Kamla
The switch option provides you with a simple and speedy way to shift your investments from one scheme/ option to another. Investors can opt to switch units between dividend plan and growth plan at NAV-based prices. Switching is also allowed into/from other select open-ended schemes within a fund family.
In the absence of it, you will have to go through the normal procedure of applying for redemption, waiting for money to arrive in your bank account (which can take a couple of days), and then making a fresh investment. But for shifts within the schemes of the same fund house, all this can be circumvented by simple applying for a switch. Even though it saves you the time and effort, but you must remember that a switch is essentially the same as redeeming your units and making a fresh investment. Hence if you have been invested for less than a year and are contemplating a switch, please bear in mind that you will be liable to pay a short-term capital gain tax (if any gains arise). Moreover, you should also take care of exit and entry loads. Some mutual funds waive off switching charges, while others may charge only an exit load.