What happens to my SIP when a mutual fund scheme merges?

Your money is not lost. When the old scheme closes, your units are transferred to the surviving scheme as a one-time structural swap. The AMC must give unitholders a 30-day written notice before the change, and no exit load, capital gains tax, or additional bank paperwork applies to the transfer itself.

How are units recalculated after a fund merger?

Units are re-allocated using the NAV conversion ratio, which is the NAV of the old fund divided by the NAV of the new fund. Your new unit count is your old units multiplied by that ratio. For example, 500 units at a ₹30 NAV merging into a fund with a ₹75 NAV gives a ratio of 0.4 and 200 new units — the portfolio value stays ₹15,000.

Is a mutual fund merger taxable?

No. Merging within the same asset class is not treated as a sale, so continuing into the surviving scheme attracts no capital gains tax and no exit load. Tax applies only if you choose to redeem your units. Under Section 47(xviii) of the Income Tax Act, 1961, your original holding period is preserved and is not reset by the merger.

What is the 30-day exit window in a fund merger?

SEBI classifies a merger as a change in fundamental attributes, so the AMC must notify unitholders 30 days in advance. During this window you can either redeem your units from the old fund or continue into the merged fund. Exit load is waived on redemptions during the window, but capital gains tax still applies and your holding period resets.

Should I stay in the merged fund or exit?

Staying makes sense if the surviving fund has a strong track record, a lower expense ratio, a trusted fund manager, and still matches your original goal and risk appetite. Exiting is worth considering if the mandate shifts completely — for instance a mid-cap fund merging into a large-cap fund — because that changes your portfolio allocation and risk profile.

What Happens to Your SIP When a Fund Merges?

One fine morning, Priya opens her investment App and has a complete emotional breakdown. She does not find any trace of the “ABC Alpha Mid-Cap Fund”, where she had diligently contributed ₹5,000 monthly for the past 4 years. Instead, a different "ABC Bluechip Large-Cap Fund" is listed.

An alarming question arises in her mind: “What happened to my money?!”

What Happens to the Money After a Fund Closes?

Mutual Fund Houses (AMCs) often merge old fund schemes to clean up redundant offerings and align with SEBI's "one fund per category" rule, as stated in the Master Circular for Mutual Funds, 2026 (Chapter 3, Para 3.10.1, Process to be followed for categorization and rationalization of schemes).

Active Exit Window before Merger:

When the old fund closes, the investor’s fund units are transferred to the new replacement fund. But the AMC cannot silently move the investor’s funds to a new scheme. Legally, they have to give a 30-day written notice to the investor about the upcoming changes in the fund scheme.

SEBI classifies a merger as a "Change in Fundamental Attributes" of a mutual fund scheme, and the following law governs the necessary actions needed towards the unitholders before that change: SEBI’s Master Circular for Mutual Funds, 2026 (Chapter 3, Para 3.2.1, Consolidation of Schemes).

Auto-Migration After the Merger:

Without any action by the investor after the scheme change, the funds are automatically transferred to the new scheme as a one-time structural swap. There is no exit load or capital gains tax applicable to this transfer, and no additional bank paperwork is required from the investor.

Unit Re-calculation After the Merger:

The fund transfer uses the NAV conversion ratio for Unit Re-allocation. This ratio helps calculate the number of units of a new (surviving) fund an investor will receive in exchange for the old (merging) fund units.

NAV Conversion Ratio = NAV of Old Fund / NAV of New Fund
New Units allocated = Old Units Owned × NAV Conversion Ratio

In Priya’s case,

Her old fund had a closing NAV of ₹30, and her total portfolio value was ₹15,000. She had 500 units in the old fund.

In the new merged fund, the NAV is ₹75.

NAV Conversion Ratio = ₹30 / ₹75 = 0.4
New units to be allocated = 500 units × 0.4 = 200 units

When Priya next checks her account, she will find 200 fund units and a portfolio value of ₹15,000, the same as in the previous fund.

Note on Fractional Units: When the new fund calculations produce fractions, the unit amount is designed to handle fractional units up to 3 or 4 decimal places, unlike in stocks. It is to avoid value loss due to rounding errors. This is laid out in SEBI’s Master Circular for Mutual Funds, 2026 (Chapter 3, Para 9.1.3, Rounding of NAVs).

The 30-Day Free Exit Window

During these 30 days before the merger, investors can choose to redeem their units from the old fund or continue their investment in the new merged fund.

Choosing to continue investment: If the investor allows the fund transfer on merger, no taxes or exit load is incurred, as merging within the same asset class is not considered a “sale”.

Later, when calculating your capital gains taxes on this merger fund, the tax department uses your original holding period, or the duration from the exact date you purchased the old fund units, not the date of the merger, according to Section 47(xviii) of the Income Tax Act, 1961. Generally, an investor is charged a Short-term Capital Gains Tax (STCG at 20%) if the holding period is less than 12 months for their equity funds; otherwise, the Long-term Capital Gains tax applies (LTCG at 12.5%, on gains above ₹1.25 lakh in a financial year), as stated in Section 2(42A) of the Income Tax Act, 1961. With this protection, the investor’s holding period is not reset just because the fund house reconsolidated the funds.

Redeeming Units during Window: Exit load is not applicable, but capital gains tax is.

Factor	A: Accept Merger & Stay	B: Stop & Withdraw
Exit Load	none	none, as they are waived
Capital Gains Tax	none	yes
Holding Period Dates	Preserved	Reset

Implications of Staying vs. Exiting

When to stay:

If the surviving fund has a stellar track record, lower expense ratios, a trusted fund manager, and matches your original investment goal and risk appetite, it is a good choice.

When to exit:

If the fund's mandate shifts completely, like a mid-cap fund merging into a large-cap fund, completely altering your portfolio's allocation and risk profile, then you can choose to leave.

Why SIPfund?

The SIPfund App’s algorithmic goal planning and consolidated investment dashboard together ensure investors are never lost on their investment journey, and they always find the best opportunities. Investors also do not need to worry about their money. All payments to the fund houses are routed through secure NSE mutual fund platforms.

We are an AMFI-registered mutual fund distributor, and our expert team gives complete support to the investor for goal planning, fund selection, and guidance during market volatility.

Takeaway

A fund merger is nothing to be worried about. It is simply an administrative rearrangement. And the details can be further verified in the notice sent by your AMC.

Are you worried that the merged fund may not align with your financial goals anymore? Call our experts at 95133 55661, and they will help you make the next move.

Want to check your funds in the SIPfund App? Do it here (iOS or Android).

Disclaimer: The information provided in this article is for educational purposes only and does not constitute investment advice or a recommendation to buy or sell any mutual fund. Mutual Fund investments are subject to market risks, read all scheme-related documents carefully.