When is The Right Time To Exit From Mutual Funds?

Even though mutual fund is a long-term investment tool, it is not possible for every one to stay invested for the long-term.

Some investors are over-anxious on the market rallies and tend to book profits anticipating of the market-crash in the near future. While some investors purchase mutual fund units when the market is at peak and sell them in fear during bull phase. Both the mentalities are not worth in the wealth creation journey. One has to be patient and stay calm during turbulent times.

Right Time To Exit From Mutual Funds

  • Right time to exit from a particular mutual fund scheme is when it is lagging when compared to its benchmark and its peer groups(Other schemes in the same category)
  • But do remember even a great fund may undergo some bad phases in it’s journey. You have to analyse why it is underperforming by closely observing the fund performance for several weeks/months. If it is still lagging, then do switch to a better performing fund.
  • Another best time to exit from your mutual fund scheme is if you are in reach to your goal amount within 1-3 years. Transfer your accumulated corpus through Systematic Transfer Plan(STP) to debt funds which are relatively safer. You can also opt for Systematic Withdrawal Plan(SWP)to transfer the accumulated corpus into your bank a/c.
  • Of all the above, the foremost thing to exit from a mutual fund scheme is- “When you need the money”. If you are in liquidity crunch, then only redeem your money. But do remember the applicable exit load and capital gains tax before redeeming. Even though you are in need of cash, don’t neglect capital gains tax as well as applicable exit load on your investments.

Entering and Exiting from a mutual fund scheme is easy. But redeeming in fear of loss during bear market and fear of missing out the rally in bull market both are avoidable. Only redeem the scheme if it is under performing or you need the cash urgently or if you are nearing your goal. There should be no exceptions to redeem mutual funds unnecessarily.

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