MF Corner: Experts answer queries related to switching, gifting funds

The only option is you have to sell the units. That is the only way to transfer the units; there is no other way of transferring the units from one person to another.

For example, I hold certain shares in my demat account and another person ‘B’ wants to buy them off me. I can sell them to B, and collect the money from B separately in my bank account without going through the traditional selling it in the market, etc. That kind of transaction can be done. So, the first holder can sell the mutual fund units to anybody else and the transfer is done. The transfer is allowed if the units are in demat form but gifting is not allowed, whether they are in demat form or in physical form.

Gupta said with regard to the query of Bank Nifty versus actual Nifty, he would have to analyae the person's portfolio and see his/her holdings because sectoral funds, such as banking or pharma funds, always carries a higher risk. So, the Nifty Index plan is a better option, he said.

If you are looking at the past performance, the average five-year and 10-year returns are very similar for the Bank Nifty as well as the index. But in fact, in the last year, the banking index has outperformed the Nifty. So, the investor may be talking of a one- or two-year period when returns were a little less than that of the Nifty index.

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Dhoot said switching funds based on a one-year performance is not a great idea, and essentially, leads to more taxes, more cost to the end investor, and does not necessarily result in a larger outperformance over the long term.

Kodak Flexicap and HDFC Flexicap over three- and five-year periods show similar returns. Over three years, both achieved almost 21 percent CAGR, while over five years, the CAGR stood at over 15 percent. There' is hardly any difference to talk about, he said.

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So, at different points in time, there are some quarters that go well for fund A, and some quarters that go well for Fund B. Going by those three or four quarters, one should not make portfolio switch decisions. If the overall portfolio is well diversified into different types of strategies, into different market capitalisations, limiting the changes is the best strategy, as the investor will avoid incurring additional expenses, he pointed out.

Today, for the investor to redeem out of this fund would mean paying capital gains tax and then investing the rest of the money, versus just allowing this money to compound by itself. If you have more money coming in, make sure that your allocations are appropriate.

So net-net, don't change funds, just because the performance in a particular year has not been great, said Dhoot.