How & When To Withdraw From Mutual Fund Investments – Here’s Everything You Need To Know
While investing in mutual funds, there are several things that must be determined – from where to invest to when to sell which fund. Based on the “buy low, sell high” strategy, many investors wait for the market to fall to buy low and sell shares when the market is high, but this is easier said than done.
Investors should therefore follow the right approach when selling shares or exiting investments in mutual funds to get the maximum benefit.
The Right Approach to Selling or Exiting Mutual Fund Investments
Investments linked to the Financial Objective: It is always recommended to buy mutual funds with a clear financial goal in mind and the right asset allocation. Anurag Garg, CEO and founder of Nivesh, says: “You have to buy the right funds, taking into account several objective parameters within each asset class. If the fund selection was made with this process, the investor should hold the investments until the financial goal is reached and not make an impulsive decision to sell due to a temporary change in market conditions. external.
That said, an exception should be made if there is a fundamental change in a fund’s attribute, which may require the fund to be sold earlier than expected.
Change in the external market situation: There are many external market factors that force investors to restructure their portfolios. For example, adds Garg, “If interest rates rise, it is prudent to move longer-dated debt funds (like Gilt funds) to shorter-dated debt funds, and vice versa. “
A change in the fundamental attribute of the fund: There could be a fundamental change in the characteristics of the fund, which could necessitate the sale of units of the fund. The change in attribute may result in changing the fundamental reason for which the investment was made in the fund.
For example, Garg adds, “SEBI changed the rules for the allocation of investments by multi-cap funds in September 2020. The rule required that these funds allocate a minimum of 25% to large, mid and small cap stocks. It took away the flexibility that these funds enjoyed. It then led to the creation of a new category of Flexi cap funds. An event like this is a fundamental change in the attribute of the fund and may force an investor to sell the units and move the corpus to another fund whose attributes match the investor’s requirements.
Underperformance compared to its peers: If a fund is underperforming its peers and this underperformance can be attributed to the strategy adopted by the fund manager, then experts say the investor can take calls to move to better performing peers. For all exit decisions, investors should also consider the implications of exit charge and taxation before making the final decision.