7 Simple Steps To Switch Mutual Funds With SIP
Ever feel like your mutual fund SIP isn’t pulling its weight? Maybe it’s underperforming, or perhaps your financial goals have shifted, and your current fund no longer fits the bill. Whatever the reason, don’t worry—switching to a better mutual fund is easier than you think!
Think of it like upgrading your smartphone: you’ve invested time and money, but when a better model comes along that meets your needs, it’s time to make the switch. In this guide, I’ll walk you through the process step by step—so you can make smarter investment decisions and keep your financial goals on track. Ready to switch?
Why Do You Want to Switch?
Before making any moves, ask yourself why you want to switch.
Is the fund underperforming? Maybe it’s not beating its benchmark or similar funds.
Does it no longer match your goals? Perhaps your needs have changed—you now want a tax-saving ELSS or a higher-growth mid-cap fund.
High expenses? Funds with high expense ratios eat into your returns over time.
If you’re clear on your reasons, let’s move to the next step.
Pick a Better Fund
Switching to another fund should be a step up, right? Research and choose a mutual fund that:
Aligns with your financial goals (growth, income, tax saving, etc.).
Has a solid track record (check returns over 3-5 years).
Comes with reasonable costs (low expense ratio).
You can use apps like Groww, Zerodha, or websites like Moneycontrol to compare funds.
Stop Your Current SIP
This is easy!
Log in to the platform where you’ve been investing.
Find the option to manage or cancel your SIP.
Select your current SIP and stop it.
Don’t worry—you’re just stopping future investments. The money you’ve already invested stays in the fund until you decide what to do with it.
Redeem or Hold Your Existing Units
Here comes the big question: Should you redeem the units you already own?
Redeem if: The fund is not performing well, and you want to completely exit it.
Hold if: It’s doing okay but doesn’t match your new strategy.
Be mindful of two things:
- Exit Load: If you redeem units within a certain period (usually a year), you may pay a small fee, like 1%.
- Taxes:
Equity Funds: Gains from units held for less than a year are taxed at 15%. Gains above ₹1 lakh after a year are taxed at 10%.
Debt Funds: Gains from units held for less than 3 years are taxed as per your income slab. For longer holdings, it’s 20% with indexation benefits.
Start a New SIP in the New Fund
Now for the exciting part—starting fresh!
Log in to your investment platform.
Search for the new fund you’ve chosen.
Start a SIP with the amount and frequency you’re comfortable with.
That’s it! Your SIP journey continues with a better option.
Switching Within the Same AMC? Use the ‘Switch’ Option
If both your old and new mutual funds belong to the same Asset Management Company (AMC), there’s a quicker way to switch.
Log in to the AMC’s website.
Select the Switch option.
Choose the old fund as the source and the new one as the destination.
This method is hassle-free, but the same tax and exit load rules apply.
Monitor Your New Fund
Switching to a new mutual fund isn’t a “set it and forget it” process. Regularly monitoring your new fund is crucial to ensure it aligns with your financial goals and delivers the expected performance. Here’s how you can stay on top of it:
- Check Performance Against Benchmarks:
Review how your fund performs compared to its benchmark index and peer funds in the same category. If it consistently lags, it might require further analysis or even another switch. - Track Key Metrics:
Keep an eye on the fund’s expense ratio, turnover ratio, and consistency of returns. High costs or fluctuating performance can erode your gains over time. - Set a Review Schedule:
Make it a habit to review your fund every 6-12 months. Use platforms like Groww, Zerodha, or Morningstar to get detailed insights and reports. - Monitor Market Changes:
Economic shifts or changes in fund management can impact performance. Stay informed about any news or updates related to your fund. - Reassess Your Goals:
Your financial objectives may evolve. Ensure your fund continues to match your risk tolerance, time horizon, and investment strategy.
- Check Performance Against Benchmarks:
Real-Life Example
Imagine you’ve been investing ₹5,000/month in Fund A for a year.
You find that Fund A has delivered only 6% returns, while its benchmark and peers are giving 12%.
You decide to switch to Fund B, which has consistently outperformed with 13-14% returns.
Steps You’d Take:
- Stop your SIP in Fund A.
- Redeem your existing units (consider taxes and exit load).
- Start a new SIP in Fund B for ₹5,000/month
Key Tips to Keep in Mind
Don’t rush. Evaluate both the old and new funds carefully.
Consult a financial advisor if you’re unsure.
Always have a clear goal in mind—don’t switch just because someone said so!
Final Thoughts
There is more to switching mutual funds while keeping a SIP than simply transferring money between funds. It’s a conscious choice that will affect your finances in the long run. You may position yourself for better wealth growth by assessing the performance of your current fund, understanding the tax implications, and selecting a fund that more closely aligns with your objectives.
It’s important to stay calm and avoid making hasty decisions based on short-term market fluctuations or what others recommend. Keep a close eye on how your new fund is performing and revisit your portfolio periodically to ensure it continues to meet your evolving financial objectives.
While the process may appear intimidating at first, the goal is ultimately to make smarter financial decisions. Consider it a refinement of your plan for achieving greater and better results. Take these measures with confidence, and you’ll thank yourself in the long run for making this wise decision!