Should you switch your mutual fund often?
Some people always wonder whether they should switch their mutual funds often. In other words, trade them often. Well, I think it depends really. I know there are people who are very much into mutual fund trading just like the way stock traders trade their stock units. And with the help of online system, trading your funds has never been this easy before.
But irregardless of how easy and simple trading it can be, the sole question remains – should you switch (or trade) your mutual fund often? For me, it’s not recommended. But this is just my personal opinion. Don’t come after me if things end up differently for your case.
Anyway, here are the reasons why I do not switch my fund often.
- I’m lazy. Yes, I admit it. The amount of research needs to be done is hugeeee. It’s even worse than stock trading. Because for any single fund, you are practically looking at few stocks or an entire industry in general. In stock trading, you only need to look at few companies that you know about.
- The service charge is high especially if you are changing from equity fund to bond fund. But even for standard fund trading, the service charge is high. Do bear in mind that the amount you are trading is pretty huge too.
- Mutual fund investing is more like a savings account for me. And well, I don’t go changing my savings account from one bank to another. So it’s the same concept. I pump in money every month, and just leave it there. Once I need it, I will get it out.
- Mutual fund investing runs on the concept of dollar cost averaging. It means you buy the same unit at a lower price in order to average out the units you’ve bought at a higher price before this. So if you are going to switch it around….doesn’t that defeat the purpose? It’s just like buying the stocks of a single company at different pricing VS buying different stocks at different pricing. That’s not dollar cost averaging in my opinion.
- Last but not least, if I really want to switch fund often, I should just spend my time, efforts and money into stock investing since it’s a lot easier to monitor. The rewards are bigger too (so are the risks).
So yeah, those are the 5 reasons why I don’t like to switch fund often. Most people I know have the same reasons of not switching their funds often. And there are also those who don’t like to trade at all, be it stocks or funds. To them, it requires too much time. But either way, there are more people who do not like to switch their mutual funds often, as compared to those who always switch around. Yes, there’s no doubt that you might be able to earn more by switching around – it’s the same with short term selling in stocks. But the risk is also there.
At the end of the day, it depends on your objectives to invest in mutual fund. Are you looking to earn some quick cash and are willing to face some risks? Or are you just treating it as some sort of a savings account? The answers to these few questions will determine whether you should switch your mutual fund often.
Hope it helps.
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I’m one of them who lazy to do the switching. For my parents, they like to do that.
I guess it is all about the timing. If you think you know the timing, switching should benefits.
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