There are some very good reasons for exchanging one fund for another. It could be a change in investment objectives, risk tolerance, tax bracket or fund performance. Whatever the reason, fund exchanges give investors the flexibility to control their asset mix.
There are two types of exchanges an investor can make on a regular basis:
- Switches - when an investor exchanges one fund for another in the same account (i.e., within the same family of funds).
- Transfers - when an investor transfers a fund from one account to another (available for both registered and non-registered plans).
Should both options be selected, the switch will always precede the transfer. It is unnecessary to sell a fund in order to switch between funds (which would lead to deferred sales charges). With the proceeds from the sale, investors can buy units of another mutual fund.