Hello Readers!

Most of us when the plan to start investing in mutual funds, we give our best to prepare an ideal strategy to invest. We include many important pointers in our investment strategy, like when to invest, where to invest, and how to invest, how much to invest. In preparing our investment strategy, we often miss out to plan our Exit strategy.

We usually get impulsive with our investment decisions. For example, we think it’s the best idea to withdraw our investments each time we see a gain or loss. However, that’s not the advisable strategy.

It is always advised to Mutual fund investors, to link your investment to a certain goal, and when it comes to exit your investments, take your goal as a parameter. The goal could be anything, to purchase a car, a house, or go on a vacation with the family. Along with your goal, having an exit strategy is always helpful.

ALWAYS HAVE A DISINVESTMENT PLAN 

Mutual fund success works on the theory, “the longer you stay, the better returns you get”. Well, this statement also needs a strategic Exit plan to work out. For example, suppose you started a SIP made on January 1st, 2013. Your SIP would have earned higher returns if you had withdrawn it in January 2018, rather than holding until December 2018.


Observe the graphs given above, you can see that holding the investment a little longer would affect your returns.

For Exiting strategy in mutual funds, experts say, analyze your portfolio on intervals. If in analysis, you observe that you are near reaching your goal, or would need to withdraw your investments soon, you should have a plan to systematically exit the investments. It is always advisable never to redeem all your investment at once.

Ideally, your Exit strategy should start work 9-12 months prior to your need for the money. Instead of withdrawing all your investment at once, plan your withdrawal in a staggered manner. Follow a systematic strategy for this as well, like the Systematic Withdrawal Plan (SWP). This way you’ll be able to transfer your investments to a safer or less volatile fund, such as a debt fund.

KNOW WHEN TO EXIT FROM INVESTMENTS IN MUTUAL FUNDS

There are some more certain instances or events that would require the withdrawal of your investments, rather than reaching your goals, let us look at these instances:

  1. At the time of Emergency: Although you have emergency funds to deal with financial emergencies, instead sometimes it happens that your emergency fund is not enough to tackle the situation. In that case, you need to consider exiting your mutual fund investments.
  2. Change in fund manager: At the time you pick out a fund to invest, you analyze the fund mangers experience and expertise, but what to do when the fund manager suddenly exits the fund. A change in fund manager can have a great impact on the fund’s performance. Everything is good with the new fund manager till the things are going at the same place as before. Thus, you need to keep observing the strategies used by the new fund manager. This would help you analyze the performance of the new fund manager and will also let you decide what you need to do with your investment.
  3. Change in fund’s strategy: Investors invest in funds only if their investment objective is aligned with the fund’s investment objective. Therefore, any change in the fund’s strategy signals as reconsidering your investment in the fund.
  4. The underperformance of the fund: Mutual funds are a market-linked investment and showing volatility with market ups and down is natural for it. Investors need to calm and stay invested for the long-term to get good returns. However, consistent underperformance for over and above 18 months is a good indicator to consider disinvesting from the fund to cut further losses.

Well, fortunately, if you are not facing any of the above issues then it is best suggested, stay invested for long-term, and plan your exit based on your goal. Along with an investment plan, always have an exit strategy ready for your investments.

Volatility has the ability to burn out your investment and returns, if not withdrawn at the right time. So basically, along with the investment plan be always ready with an exit plan for your investments.

For any kind of investment query, you can contact us at Shri Ashutosh Securities Pvt Ltd., we are here to help you in any way possible.


Happy Investing!


(Mutual Fund investments are subject to market risk Illustrations are for example only, there is no guarantee of returns. Past performance is not an indicator/guarantee to future returns).