Switch (Between Schemes)

Switch is a transaction that simultaneously redeems units from one mutual fund scheme and uses the proceeds to subscribe to another scheme of the same AMC. It is recorded as two separate events: a redemption (with applicable exit load and capital-gains tax) and a fresh purchase.

Key consequence: A switch is NOT tax-neutral. The IT department treats it as a sale - STCG or LTCG applies based on the holding period of the units being switched out. The new units start a fresh holding clock.

Example: You switch Rs.5 lakh from an equity-fund Regular Plan to its Direct Plan after 8 months. The 8-month holding triggers STCG at 20% (post-Budget 2024) on the gains, even though you stayed within the same scheme economically.

When to use: Migrating from Regular to Direct (one-time tax cost for lifelong lower TER), rebalancing within an AMC's fund family without paying transfer charges, switching to a better-performing peer-category scheme, or moving from Growth to IDCW. Inter-AMC moves require sell-and-rebuy.

SEBI caveat: AMCs sometimes nudge investors to switch into NFOs (new fund offers) - this creates tax events for the investor while earning the AMC a fresh asset gathering. Always compute the tax leakage before agreeing to any 'free' switch offer.

Related: STP, Exit Load, STCG, LTCG, Direct Plan.