When you switch from one mutual fund to another, here's what happens:
- Selling Old Fund Units: Your units in the old fund are sold.
- Buying New Fund Units: The money from selling those units is used to buy units in the new fund.
Why Units Reduce:
The units reduce because the price per unit, known as NAV (Net Asset Value), is different for each fund. Even though the total amount of money stays the same, if the new fund’s NAV is higher than the old fund’s NAV, you will end up with fewer units in the new fund. So, your units are less, but your total investment value remains unchanged.