How to switch

This week we attempt to take you through the “switch transaction,” now quite prevalent in the mutual fund industry and across fund houses.

What is a switch?

A switch is a movement of units or amount from one scheme to another scheme of the same fund house. In other words, it isa redemption in one scheme and a subscription in another. For example an investor holds units in scheme X of an AMC now wants to invest in scheme Y of the same AMC. There are two ways to do this: One, redeem the amount / units from scheme X and fill up a new form for scheme Y and invest in the scheme by giving a new cheque Two, opt for the “switch” transaction that facilitates the same process with just one request.

What is the switch process?

The investor needs to give a request duly signed by all the holders mentioning the units or the amount and the source and destination fund.

Is KYC mandatory for a switch transaction?

Yes KYC is a mandatory requirement from January 2011, as per the SEBI regulations. The reason is that the destination fund is treated as a subscription and hence KYC is required.

Will the request be processed on the same day of receipt?

Yes the request will be received on the same day of receipt in the source fund. In the destination fund, the units will be credited based on whether the money is from an equity or a debt fund. There is a lag in the credit based on whether the amount is moving out of an equity fund or otherwise.

The transaction will be processed based on the applicable NAV of the date of receipt of the transaction. The investor will receive a statement of account for the transaction.

Will the statement reflect the transaction in units or the amount?

Whenever there is a switch transaction, the units in the source fund will be converted to an amount and that amount will be switched in to the destination fund.

For example, the investor can give a request for switching “All” units from a scheme. The source fund will show the amount and the units that were redeemed and the destination fund will reflect the amount and the units allotted.

Will STT be charged?

Yes the STT will be charged on all the redemptions and it will be levied in the source fund.

Will there be a difference between the amount out of a scheme and the amount transferred into a scheme?

Yes there could be on account of the load levied and the STT deducted.

Is there a facility to switch systematically?

Yes almost all fund houses offer a STP which is a systematic switch plan. Investors can park their funds in liquid or money funds as a lump sum amount and give a request for STP to another equity or debt scheme at a specified interval period as available with a fund house.

Can an investor switch between two Fund Houses?

Currently there is no facility to switch units between two fund houses. The transactions will have to be processed as redemption and a subscription only.

(The author is CEO, Sundaram BNP Paribas Fund Services.)

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