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Mutual Fund Investors, plan their investment efficiently. They do research and study, they seek advice from financial advisors, they research about funds, and then finally pick up the most suitable funds and start investing.

But they often miss out planning their exit from MF investment efficiently, which eventually impacts their wealth creation. Investors who do not have a planned exit strategy from MF investment, and redeems suddenly any time, may lose out on returns!

So how can we plan the right time and the right strategy to redeem or exit from MF investments! Let us see……….

The Right Time To Redeem………….

In general, an investor should exit mutual fund investments on completion of financial goals. In fact, for long-term investments, investors should start exiting equity-linked MFs when the goal is still 2 to 3 years away and shifting the funds to safer investment options.

Like for example if an investor is investing for his retirement in equity funds, and he is 2-3 years near reaching his goal, he must opt SWP (Systematic Withdrawal Plan) and start withdrawing a fixed part of their corpus in equity and reinvesting them in safe debt mutual funds.

This way he can ensure the safety of the corpus generated, over the long-term in equity funds.

However, the above strategy works out effectively when the market is in the ideal situation. There are many other instances of a market that calls for a different and well-sounded exit strategy.

Other Instances When You Should Redeem……………

At the time of Emergency: Although you have an emergency fund 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.

Change in fund manager: At the time you pick out a fund to invest in, you analyze the fund manager's 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 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.

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 you to reconsider your investment in the fund.

The underperformance of the fund: Mutual funds are market-linked investments 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.

Exit Strategy For The Above Instances……….

In case if you face any of the above instances mentioned, then you can exit from your current investment, but with proper planning. Here is what you can follow, you should first stop the SIP. And start the same in similar funds in your portfolio or choose a better one.

If Not Exit Consider Then Consider Reallocation………….

For an effective investment plan, one must rebalance his/her portfolio at fixed intervals. It is done by selling/exiting investments in overpriced asset classes and investing in underpriced ones.

Rebalancing a portfolio helps the investor to generate a higher return and at the same time de-risk the assets.

Let Us Sum Up………..

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

Keep reading our article and stay updated with the latest news about Mutual Funds!

For any kind of 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).