Staying invested is important but staying invested in the wrong mutual fund is just as harmful as not investing at all. If your SIP has been underperforming for a sustained period, your financial goals have changed, or you simply want to move toward a better-suited fund, switching is not just an option, it is a sound, strategic decision. This blog discussed covers everything you need to know about how to switch SIP from one fund to another in detail.
How to Switch SIP from One Fund to Another
There is no single button that transfers an active SIP from one fund to another. The only way is to stop the existing SIP, redeem the accumulated units, and reinvest the proceeds in the new fund by starting a fresh SIP. Here is what the process actually involves:
- Pause your existing SIP mandate instead of cancelling them, so you don’t miss your compounding advantage.
- The accumulated units already in the fund are not automatically moved.
- You then redeem those units, which is treated as a sale and triggers exit load and tax if applicable.
- After the redeemed proceeds are deposited into your account, you may reinvest them into a different fund and create a new SIP mandate.
If you are switching between two different AMCs, you must involve both fund houses. Every AMC can have a separate process for documentation and verification.
What Does SIP Switching Actually Mean?
Before getting into the process, it helps to understand what happens when you switch a SIP. A switch is not a transfer of units from one fund to another. It is, in effect, a redemption from the existing fund and a fresh purchase in the new fund. The two transactions happen together, but from a regulatory and tax standpoint, they are treated as two separate events.
This distinction matters because it determines how exit loads and capital gains tax apply. A fund switch is treated as both a withdrawal and a fresh investment, which can trigger capital gains tax based on the scheme category and investment duration. Many investors assume switching is a neutral internal transfer. It is not, and that assumption leads to avoidable tax surprises.
There are broadly two types of switching. When both schemes belong to one AMC, the transfer process is generally handled directly on that fund house’s platform with minimal hassle. Switching across AMCs, meaning from a fund managed by one company to a fund managed by another, requires you to stop your existing SIP and start a new one separately, as inter-AMC direct switching is not available in India.
Step-by-Step Process to Switch SIP Funds
The steps to switch your SIP correctly, without missing anything important, are as follows.
Step 1: Understand what is motivating the decision to move to another scheme
Before touching anything, be clear on the reason. Determine if the scheme has been trailing comparable funds and its benchmark consistently for three years or longer. Has your risk appetite or investment goal changed? Is there a structurally better fund available? If the reason is short-term underperformance or market noise, switching is likely the wrong move.
Step 2: Stop the existing SIP
Log in to your AMC’s platform, broker account, or investment app and cancel the SIP mandate for the current fund. Note that stopping a SIP does not redeem your existing units. It simply stops future instalments from being deducted.
Step 3: Decide how to handle existing units
The investments already built up can be handled in two different ways. You can redeem them as a lump sum and reinvest in the new fund, or you can use an STP to transfer them gradually over 6 to 12 months. Investors shifting from debt to equity often prefer phased investing through SIPs across several months to manage volatility and timing concerns.
Step 4: Check exit load before redeeming
Each SIP instalment has a separate exit load period from its investment date, and switching is treated as redemption and may attract exit load. Several equity mutual funds levy a 1% charge on withdrawals made within a year of each instalment. Use the FIFO method to identify which instalments are beyond the exit load window before initiating redemption.
Step 5: Initiate the switch or redemption
If switching within the same AMC, use the switch option on the platform. To move between two fund houses, you must sell units in the old scheme before investing in the new AMC’s fund. Keep your redemption confirmation and purchase acknowledgment for tax records.
Step 6: Set up the new SIP
Register a fresh SIP mandate in the new fund with your preferred date, amount, and tenure. Ensure your bank auto-debit is linked correctly.
Step 7: Confirm and track
Check that the old SIP has been cancelled and the new one is active. Review the switch transaction in your consolidated account statement to ensure everything is processed correctly.
SIP Switching vs SIP Stopping: Key Differences
Both options pause your current investment journey, but they lead to very different financial outcomes depending on what you do next. Here is a clear discussion of how the two differ, as follows.
| Parameter | SIP switching | SIP stopping |
| What it means | Cancel existing SIP and move corpus to a new fund | Cancel future instalments, keep existing units invested |
| Redemption triggered | Yes, existing units are redeemed | No, units stay in the same fund |
| Tax event | Yes, capital gains tax applies on redemption | No tax event triggered |
| Exit load | Applies instalment-by-instalment based on holding period | Not applicable unless you separately redeem |
| New SIP started | Yes, in the target fund | No, unless you manually restart |
| Best suited for | Goal change, fund underperformance, risk rebalancing | Temporary cash flow constraint, short-term pause |
| Impact on compounding | Corpus restarted in new fund, compounding continues there | Compounding continues uninterrupted in existing fund |
| Cross-AMC possible | Not directly, requires stop, redeem, and restart | Yes, simply cancel the SIP mandate |
The simplest way to think about it is this. Stopping is a pause. Switching is a decision. One buys you time. The other requires a clear reason, a tax plan, and a better alternative already identified before you act.
Tax Implications & Exit Load on SIP Switching
This is the section most platforms skip and where investors are most often caught off guard.
Capital gains tax:
Every instalment made through SIP has its own investment date and holding tenure. Equity mutual fund SIP investments held longer than a year are taxed at 12.5% on gains exceeding ₹1.25 lakh, while investments redeemed within a year are subject to 20% STCG tax.
This means a two-year-old SIP could have some instalments qualifying for LTCG treatment and others attracting STCG each calculated separately, not as a single lump sum.
Exit load:
Various equity-oriented funds levy an exit charge if investments are redeemed before completing the prescribed holding duration. A 1% exit load on a ₹5 lakh corpus reduces your investable amount by ₹5,000 immediately. Combined with STCG tax on recent instalments, the total switching cost can be significant.
SEBI update: Regular to Direct plan switch
SEBI has simplified the process of moving from regular mutual fund plans to direct plans while reducing associated costs. Starting March 21, 2025, transfers between direct and regular variants within one scheme can be made without paying an exit load. This is a meaningful development for investors looking to reduce costs without changing their fund.
When Should You Switch Your SIP? (Investor Scenarios)
Not every period of underperformance justifies switching. Here is how to evaluate it:
Switch is justified when:
- Your fund has consistently underperformed its benchmark and category peers for 12–18 months across different market conditions, not just one bad quarter.
- Your financial goals have changed. An investor who started a small-cap SIP for long-term wealth and is now approaching a near-term goal may rightly shift toward a more stable large-cap or hybrid fund.
- Investors sometimes reconsider a fund when the replacement manager adopts a strategy that differs from the original mandate.
- The decision to change funds may arise for needing improved risk-adjusted performance, reduced costs, or schemes unavailable through their existing AMC.
Switch is not justified when:
- The entire market category has underperformedC if all small-cap funds are down, the problem is the market, not your fund specifically.
- You are reacting to 2–3 months of poor returns. Short-term noise is not a reason to switch.
- You are switching across asset classes, for example, from debt to equity. In this case, spread your redemption and reinvestment over 6–12 months rather than doing it all at once, to reduce the risk of poor market timing.
Common Mistakes Investors Make While Switching SIPs
Making changes merely based on recent performance may expose investors to exit fees and inefficient tax outcomes. Any fund change should be assessed according to long-term financial objectives instead of temporary returns.
- Stopping the old SIP without starting the new one immediately
Even a 2–3 month gap breaks investment rhythm and costs compounding. Set up the new SIP on the same day you stop the old one.
- Calculating tax on the total corpus as one investment
Every instalment has its own purchase date and holding period. The actual tax liability can be significantly different from a single lump-sum calculation, always assessing it instalment by instalment.
- Switching too frequently
Each switch triggers exit loads and tax events. Give every fund a fair evaluation window of at least 12–18 months before acting on underperformance.
- Not completing KYC before redeeming
When moving to a different AMC, incomplete KYC is the most common cause of delays. Complete this step before initiating redemption so there is no gap in reinvestment.
- Not researching the destination fund properly
Review end-to-end details of the new mutual fund comprehensively before transferring your investments. Check past performance, expense ratio, portfolio composition, fund manager track record, and risk-return profile. A poor choice of destination fund defeats the entire purpose of switching.
Final Thoughts
Knowing how to switch SIP from one fund to another is only half the equation. The other half is knowing when the cost of switching is genuinely worth it. Every switch carries a tax event, a potential exit load, and a break in compounding. Run the numbers before you act, not after. A well-timed, well-researched switch adds value. An impulsive one quietly erodes it.
FAQs
Yes, you can stop an existing SIP and start a new one anytime. However, if you’re redeeming accumulated units to switch funds, consider tax implications and exit loads based on holding periods.
They’re essentially the same process. Switching usually means stopping the old SIP and starting a new one, possibly with unit redemption. The decision depends on your goals and whether the new fund justifies the change.
Yes. Since capital gains tax governs mutual fund transactions, switching will attract either short-term or long-term capital gains tax depending on the holding period of each SIP instalment.
Within the same AMC, a switch request is typically processed within one to two business days. The redemption from the source fund and the allotment of units in the target fund usually happen on the same or next business day. Setting up the new SIP mandate may take three to five business days depending on the platform and bank mandate processing time.
Not necessarily. What might appear as a loss is not a loss in reality. Your cost of investment is the original amount invested in the old fund, not the market value at the time of switching. However, switching during a market downturn can lock in lower NAV values, so timing matters.
You cannot directly switch your SIP from one AMC to another. You will need to terminate your ongoing SIP, redeem your existing units, and reinvest them in the new fund. This process triggers tax implications and any applicable exit load, so factor these in before proceeding.
