sip or lump sum: when to switch from one fund to another?

are you dissatisfied with the performance of your investment fund? fund switching can be confusing. the biggest question that arises is whether to opt for a sip or a lump sum investment plan. there is a fear of incurring losses associated with fund switching due to any market value correction. this article will guide you through fund switching:

switching in same asset class

you can opt for a lump sum switch if you switch to a fund of the same asset class. if you are making a switch from a debt fund to a debt fund or equity to an equity fund, you can opt for lump sum investment.

you must be thinking that there is a possibility of loss in lumpsum investment due to getting the timing wrong. what might appear as a loss is not a loss in reality. while making the switch, you must consider the following points -

• always consider that your investment market value at the time of switching is not your investment cost in the new fund. your cost of investment is the original amount invested by you in the old fund. calculate the returns on that initial cost of investment using a sip return calculator.
  
• whenever a correction happens in the market, all the funds fall. therefore, if the new fund’s value decreases, the old fund’s value will also decrease.

sip return calculator will help you calculate returns on your sip investment.

switching in different asset class

whether to opt for sip or lumpsum depends on various factors while switching asset classes. given below are some scenarios -

• debt-oriented funds: if you are switching into debt or debt-oriented funds, you can opt for both sip or lump sum as these types of funds are less volatile. therefore, the possibility of mistiming is less.
  
  however, keep in mind that you can go for a lump sum if you are switching to a short-duration fund. if you are switching to a long-duration fund, you can opt for sip.
  
• switching to low risk and less volatile equity: you can opt for a lump sum switch if you are switching to a fund that is less prone to volatility and is low risk.
  
• switching from debt to equity fund: if you are making a switch from debt to an equity fund, you must opt for a sip and spread your redemption and investment over 6-12 months.

whenever you want to make a fund switch, always consider the asset class. if the switch is in the same asset class, go for a lump sum. if you are switching to a different asset class, go for a sip.

get an estimate of your sip return through this sip calculator.