How to Switch Mutual Funds

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Last Updated: October 25, 2021 References

If your investment goals change or a mutual fund is under-performing, you may want to switch mutual funds. Switching funds within the same family typically is a relatively simple prospect. Most funds allow you to exchange shares, although there may be limits to this privilege. Selling your shares to purchase shares in another fund potentially incurs the greatest cost to you. If you simply want to transfer management of your shares from one company to another, prepare to have limited access to your investment assets for days or even weeks while the transfer is completed.^{[1]
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Method 1

Method 1 of 3:
Switching Funds in the Same Family

1
Evaluate your investment objectives. Over time, your investment preferences and goals may have changed. This is especially likely if you've held your fund shares for many years. If the objective of the fund as stated in the fund's prospectus no longer matches your own, it may be time to switch.^{[2]
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- For example, suppose you were single when you started your investment. Now that you've married and have a child on the way, your investment plan has changed. Another fund in the same family may have different objectives that better meet your preferences and goals.
- If you're working through a broker, discuss your changed goals or preferences with them. They may be able to recommend a fund that would better suit you.
2
Read prospectuses carefully. With your investment goals in mind, evaluate prospectuses of other funds in the same family that catch your eye. Consider features of several different funds, and calculate fees to compare the funds.^{[3]
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U.S. Securities and Exchange Commission
Independent U.S. government agency responsible for regulating the securities industry, which includes stocks and options exchanges
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- You also want to research the sponsor of the fund to understand their investing style and philosophy. This will help you pick a fund that best suits you and doesn't subject you to unnecessary risk.
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3
Contact your advisor or broker. If your existing fund shares are in an account managed by a broker or other financial advisor, they can give you tips on funds that might work best for you and explain the firm's exchange policy.^{[4]
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- While most investment banks allow customers to exchange shares between funds, there may be restrictions. For example, you may only be able to exchange shares in the same class, or you may be limited to a certain dollar amount or number of shares at a time. Your financial advisor can explain these restrictions to you.
4
Initiate your exchange online. Many brokers and investment banks allow you to exchange assets between mutual funds using your online account. Look for a "transfer" or "exchange" option after you log on to your account.^{[5]
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- If you have any problems exchanging funds, a customer service representative typically can help you.
- Your exchange may take a day or two to complete, depending on when you initiate the exchange.
5
Calculate your gain or loss. When you exchange shares in one mutual fund for shares in another, you may gain or lose money on the transaction. This amount must be reported on your taxes as a capital gain or loss.^{[6]
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U.S. Securities and Exchange Commission
Independent U.S. government agency responsible for regulating the securities industry, which includes stocks and options exchanges
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- Even though your brokerage may not charge any fees for an exchange, the exchange is considered a taxable event because technically your brokerage is selling shares in one fund and buying funds in another.
- You'll receive a statement that specifies whether you realized a gain or loss from this transaction. It's a good idea to keep that statement for your records.
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Method 2

Method 2 of 3:
Liquidating to Purchase Shares

1
Calculate fees for redemption. Your mutual fund may charge an early redemption fee if you decide to sell your shares before a specified date. This information will be in your fund's prospectus, or you can ask your broker about it.^{[7]
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- Early-redemption fees may be a flat fee or a percentage (usually around 2 percent) of the value sold. These fees are charged to encourage long-term investment.
- If you have Class C shares, you may also be liable for deferred sales charges if you liquidate your shares.
2
Place a sell order for your fund shares. Typically you can sell your shares online, or you can call your broker or financial advisor and get the process started over the phone. The order won't actually be completed until the close of business that day.^{[8]
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- If you want to sell the same day, contact your broker and find out what the cut-off time is. With some brokerage firms, this can be as early as noon to ensure the sell is processed at 4:00 p.m. when the stock market closes.
3
Receive your distribution the next day. Since the sale isn't completed until after the close of business, you typically won't have your money in your investment account until the next day at the earliest. It may take several days, depending on weekends and holidays.^{[9]
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- Typically the amount at which your shares were sold will show up as cash in your investment account. You'll also get a statement of the transaction from your broker.
- The sale is executed at the fund's net asset value (NAV) for the day, converted to a per-share price. Multiply the per-share price by the number of shares you held to check the amount of your distribution.
4
Determine your capital gain or loss. Generally, the difference between your buy price and your sell price is a taxable gain or loss. The fund company keeps track of your buys and averages the price to determine your buy price for the life of your shares.^{[10]
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- You can choose other methods of computing capital gain or loss. Different methods may have different effects on how much tax you owe. Consult an accountant or tax professional for more information.
5
Place a buy order for shares in the new fund. Once you've received your distribution from the sale of your old fund shares, you're free to switch to the new fund. If the new fund is offered by a different broker, you can simply withdraw your funds, or transfer them to the other broker.^{[11]
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- As with sales, buy orders are completed at the end of the day, based on the fund's daily NAV. It may take a day or two for the shares to show up in your investment account.
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Method 3

Method 3 of 3:
Transferring to a Different Brokerage

1
Confirm the new brokerage offers the same fund. Typically you can only transfer shares to a different brokerage if that brokerage also trades shares of that fund. If you have a fund offered exclusively by your bank or other financial institution, you can't move those shares somewhere else.^{[12]
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- With an in-kind transfer, you're not really switching mutual funds – you're just changing who manages your investment account. You're moving your shares from one brokerage firm to another, but no shares are being bought or sold.
2
Talk to your current broker about the transfer. If your current broker isn't aware that you're planning to transfer assets to a different brokerage, they may reject the transfer. Make sure they know about the transfer in advance to avoid delays in the transfer process.^{[13]
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Financial Industry Regulatory Agency
Non-governmental organization responsible for regulating brokerage firms and exchange markets
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- Because a transfer is not a sale, it doesn't trigger any tax consequences. However, your broker may charge fees for processing the transfer or delivering your assets to your new broker.^{[14]
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- Your current broker can also tell you about any potential problems, assets that can't be transferred, or other costs you might incur as a result.
3
Complete a transfer form. You'll get a transfer form from the new brokerage firm where you want your assets transferred. The new ("receiving") firm initiates the transfer. You may also need to attach your most recent account statement from your current brokerage firm.^{[15]
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- If you already have an account at the new brokerage, you may be able to initiate the transfer of your fund using your online account.^{[16]
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4
Wait for your transfer to be validated. Once your transfer request is received, your new broker will initiate the transfer process. Your current broker reviews the request and validates it for accuracy and completeness.^{[17]
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Financial Industry Regulatory Agency
Non-governmental organization responsible for regulating brokerage firms and exchange markets
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- If the information on the request doesn't match the information on the broker's records, they'll reject the transfer request and you'll have to start over.
5
Get an estimate of the transfer completion time. Once you've initiated your transfer, the receiving brokerage typically can give you a reasonably accurate estimate of how long it will take for the transfer to be complete.^{[18]
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- Generally, expect it to take as long as 4 to 6 weeks for the transfer to be completed. During that time, you won't have access to any of the funds in the account being transferred.
- Even after the transfer is complete, the receiving brokerage my freeze your account for a brief period of time and not allow you to make any trades.^{[19]
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  Financial Industry Regulatory Agency
  Non-governmental organization responsible for regulating brokerage firms and exchange markets
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Warnings

This article primarily relates to switching mutual funds in the United States. If you live in a different country, the process may be different. Consult an investment advisor.

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