Investors in a scheme may want to shift either the whole or part of their investment onto another scheme of the same mutual fund. To simplify this process, investors have the facility of filling one transaction slip, indicating the scheme and amount/units they wish to switch out (redeem) and the scheme into which they wish to switch in (purchase).

Transaction slips for switch are available separately. You can switch out an amount in rupees or a certain number of units. The scheme documents would specify the minimum amounts.

Can we automate the process to happen at regular intervals?

Yes! Such a facility is available and is called a Systematic Transfer Plan. This is a facility where unit holders of designated schemes can transfer a fixed amount at regular intervals to designated open-ended schemes. Investors opting for this are therefore systematically switching amounts from one scheme to another as an investment strategy. For example, an investor can keep funds in a liquid scheme and opt to transfer or switch to an equity scheme every month on a predefined date.

Investors would have to fill and submit the STP registration form to the mutual fund to enrol for the same.

Some mutual funds offer a trigger facility to investors. Under this, a switch is automatically triggered in the investor folio on the occurrence of a certain event – say, for example, if a certain appreciation level is attained. Investors can choose a specific percentage target return. If this is achieved in the scheme, for example, a gain of 25 per cent, then either the gain or the complete fund value (as per the investor choice) can be redeemed or switched to any of the schemes notified. Triggers thus act as financial planning tools.

I had not filled in the scheme option and was allotted dividend payout by default. Now I wish to change to growth option. Will this be a switch?

Under the dividend option, there are two sub options — payout of the dividend or re-investment of the dividend in the same scheme.

If an investor does not select the option in the application form, a ‘default’ option is allotted which may be either growth or dividend, as mentioned in the scheme documents. Even under the dividend option, investors would have to select either payout or reinvest. If you do not select either, the default for the scheme will be allotted.

Any change from dividend payout to reinvest would be by giving a simple written request. It will have no implication on the number of units in your account, and future dividends would be reinvested. However, changing to ‘growth’ would have other implications. The dividend and growth options are treated as two different schemes, with different NAVs. A change would be a switch — redemption from the dividend payout scheme and a purchase into the growth scheme. This change would have to be effected by submitting a switch request form.

Contributed by CAMS Viveka, an Investor Education Initiative from CAMS.

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