What is the right time to withdraw your mutual fund investments

A question that often crosses the mind of an investor is the right time to withdraw mutual fund investments. The decision to withdraw your mutual fund can be far more daunting than deciding which fund to invest in. To help you navigate this and make an informed decision, we have listed below a few factors that you must take into account before you make a withdrawal. Read on to find out more:

The mood of the market is not a deciding factor

Investors often mistakenly believe that if the market is failing, it is a signal to exit the mutual fund. However, markets are not a definitive indicator of the right time to redeem your funds. If you have a fund manager, he or she is already keeping a track of the movement of the market. So don’t base your decision to redeem just because the markets are down. Analysts note that the mood of the market can never be predicted accurately.

A financial emergency is not a reason enough

If you have an unforeseen event pop up and you need liquidity, it is advisable not redeem your mutual funds. A good financial discipline encourages you to have a contingency fund for a rainy day. But withdrawing a mutual fund to meet a particular emergency is not advisable. Be mindful of the exit loads too.

Consistent underperformance of a mutual fund signals exit

Every mutual fund has a rough phase when it does not perform well. Instead of looking at the bad performance of the fund in a particular month, compare the returns from the fund over the last six-eight quarters. In case a mutual fund has been underperforming continuously, chances of revival are bleak. In such a scenario, it is best to exit the fund.

Rebalance of the portfolio means exit 

Often after a few years of investment, the investor tries to diversify their investment portfolio. Such diversification also means that the existing portfolio is rebalanced. There could be other triggers for a rebalancing. For example, once you are 50 years old, you may genuinely need to reduce your overall exposure to equities. You might also be faced with a rising NAV in the equity component of your investment portfolio. These circumstances require you to exit the mutual fund.

A mutual fund is receiving a lot of negative media coverage

While such stories are hard to verify, if there is bad press about a particular mutual fund or there are rumors that a SEBI investigation is underway, it could be a trigger to exit. As the old saying goes, there is no smoke without fire and consistent negative media coverage raise red flags about the performance of the fund. You don’t want to lose your investment and therefore exiting the fund is a rational approach in such cases.

The financial goal has been met

Often, investments in mutual funds may be done for attaining a personal financial goal. Needless to say, when the goal is met, investors would usually want to withdraw the investment. In such a case, liquidating your mutual funds make sense. 

Think through your reasons before you decide to exit a mutual  fund. Do not act on any whim and end up taking a decision that you may regret.

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Ved holds a Master's Degree in Management Studies in Finance from the ICFAI Business School Mumbai. He is extremely passionate about Equity markets and swears by the age-old maxim of “Time in the market is more important than timing the market”. He has in-depth knowledge & knack of the mutual fund industry and loves working on client portfolios and analyzing Mutual fund schemes on myriad subjective and objective parameters.

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