Definition of Switching
Switching means transfer of investment from one fund to another.
It is a process of switching a position in exchange of another with a view of better profit and benefits.
It can be done with the family of funds or to an entire new mutual fund family for the purpose of better yield income.
Brief Explanation of Switching
It can also be seen as liquidating one investment and then reinvesting in another for the purpose of better growth, capital gains and income.
- It is normally done in mutual funds and securities.
- Selling the investment may result in capital gain and that amount would be taxable.
- Before making any switch, expert advice should be taken.
- Investment managers listen to your demand and then offer you any such investment option available or do their research.
- Extra benefits and expense needs to be considered before it.
- New fund should be according to you risk tolerance and investment horizon.
- You can make switch as often as you want but frequent switch is also not a good decision.
- In futures means withdrawing one contract and investing in new one with longer maturity terms.