Should I switch out of my fund if a better-scoring one appears?

Usually not on the strength of a score alone. Switching carries real, immediate costs — an exit load if you are early, capital gains tax on the units you sell, and the reset of compounding you had already banked — while the benefit is only a probability that the new fund keeps outperforming. Category rankings rotate constantly; this year's leader is frequently mid-table two years later.

A switch deserves examining when something structural has changed rather than when a number moved. Genuine reasons: the fund has drifted away from the mandate you bought, the manager or strategy changed, its risk-adjusted numbers have trailed its category for several years rather than a couple of quarters, or you hold a regular plan and could own the very same fund in direct at a lower fee. A single weak year, by itself, is noise.

Two mechanics decide what a switch costs you. Equity units sold within a year attract the higher short-term capital gains rate and often an exit load, which makes early exits the most expensive kind; ELSS units stay locked for three years from each individual instalment regardless of performance. And if you do decide to move, redirecting new SIP instalments to the better fund — instead of redeeming the whole corpus at once — is usually far cheaper than a clean break.