Hello Readers!
Are you a long-term investor? If you are then you already know that you must stay invested for a long-term in your funds to get good returns, but do you know exactly when you must redeem your long-term investment?
Mutual funds offer the benefit of easy participation that is any investor can start their investment in mutual funds, any time they need or want. Similarly, the mutual fund also offers easy liquidity that is any investor can exit from mutual funds anytime they require. This feature results in a question in the investor’s mind, when should they withdraw? But more importantly, should they withdraw simply because they can?
Traditional financial securities like Fixed Deposits, PPF (Public Provident Fund), Recurring Deposits, and others come with a maturity period, thus making it clear for its investor when to redeem it. Also, they are fixed returns giving investments, thus investors know how much they will receive from these investments.
However, a market-linked investment like mutual funds offers the easiness of entering and exiting from these funds. An investor can anytime invest in and redeem their mutual funds. But here the question is what is the right time to redeem one mutual fund investment, or what is the right time to exit from long-term investments? Let us know about it.
Redeem, Whenever Money Is Required?
People have needs and they need money for that. Sometimes investors for their small and short-term needs like their oversized credit card bill to pay, any medical emergency, or for any other reasons, choose to redeem their long-term investments, which is ideally not advisable.
Investors for their short-term need must plan to invest in mutual funds like liquid funds and short-term income funds. These funds invest in securities that mature in the short-term, and these funds do assure relatively higher stability of returns. Investors can use these funds to park their idle money for short-term say 6 months or one year. They can easily redeem their investment from these funds at the time of any emergency or for their short-term requirements.
Do not ever redeem your long-term investment for any emergency or for any short-term requirement. Doing this can reduce the estimated return from your long-term investments, and thus your wealth creation plan will be disturbed.
Redeem, After the Mandated Time Period Is Over?
Most investors who invest in long-term investment, have the thought that after 5-7 years of investment (minimum investment period for good returns from long-term funds), it is a must for them to redeem their funds. However, it is not so. For investors of long-term funds, the longer they remain invested in equity funds, the more they will benefit from the compounding of returns. So basically, they should not think of only 5-7 years of investment in the long-term, in fact, if they don’t require the money after 5-7 years of investment, they can stay invested for a longer-term say 10,12,15 years.
Similarly, for debt funds holders also, if they have invested in funds maturing in one year but they don’t need the money for the earmarked objective, it is suggested leave your investment as it is. It will keep compounding and accumulating more for you.
It is always the best strategy, to link your goals with your investment. Linking your goals helps you analyze the right tenure of your investment and most importantly your goal linked with your investment also help you find out the right time to redeem your long-term investments. So if you are planning to invest in Equity mutual funds or is already investing in mutual funds, link your investment with your goal, and let your goal decide the right time to redeem your long-term investments.
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).