Can MF portability be the future?

Currently, if you wish to switch from one mutual fund to other you redeem from one mutual fund and invest in other. This will entail exit load, if any and taxes that you would be paying for doing so. But if you come to know that you can save all these by just porting from one mutual fund to the other, the smile on your face would be worth noticing. Going forward, even if the regulator permits it and technology makes it happen, it will not be a smooth ride.  
 
But not everything is rosy with this situation. There are many things to look before implementing the portability option to mutual funds. First of all, it is very important that the rate of financial literacy rate of our country must be more than 90 per cent. This would drastically change the investor behaviour towards investment and they would understand the importance of long-term investing.
 
As we know, equity performs better in the long-run but still many investors try to time the market and chase performance to earn more in the short span of time. But it is very important to understand that the time for which you are in the market is important rather than timing the market. According to one of the studies, CGM Focus (CGMFX) was the highest-return equity fund from the year 2000 through 2010 in the US. It had an annual return of 18.2 per cent, beating its closest rival by 3.4 per cent. During the same time, the fund’s typical shareholders lost 10 per cent. Investors who are motivated by greed and fear added heavily to the fund near the top and exited as the fund neared the bottom. This shows the importance of remaining invested, irrespective of market conditions.
 
So, if we see MF portability being introduced, it will pose a problem for the entire industry, especially if we discount the typical investor who loves chasing performance. The portability of the MF schemes will also create its own problem for the mutual fund houses. Fast inflows and outflows of the fund from the schemes will force them to take short investment horizon that might not create optimal returns for the funds, further impacting the performance of the funds.
 
The appropriate time to implement this will be when investors are financially literate enough to understand the pros and cons of such investment.