Most of the investors invests in mutual funds with a “Goal in Mind”. But due to uncontrollable emotions they randomly enter and exit mutual funds frequently. That “uncontrollable Emotions” are-
- Greed and
When the market is in bull run they invests more with “Greed” in anticipation of their investment growth but when the market enters bear phase they “Fear” of losses to their existing investments and redeem without a second thought!
Is this the right way to invests in mutual funds?Absolutely No! As you are investing for a goal you should not be frightened of the market movements. Instead make “Volatility as your Friend”. If you are still not convinced approach a good financial advisor who guides you in tough times.
You know that Volatility is the part of the stock market, then why are you frightening on the short term price movements? As your goal is 10-15 years away you should welcome volatility as it would gives “extra units” which averages out your investments in the long run.
According to financial experts you should redeem/exit your mutual fund investments only when-
- You reached Your Goal
- You are Nearing Your Goal Amount
- When the Fund is Consistently Underperforming its Benchmark
- Fund Objective/Fund Manager Change(You should keep a watch for atleast 3-6 Months and take decision whether to exit or not)
At the same time, do remember to exit from the mutual funds atleast 1-2 years from your goal date. You can do either Systematic Withdrawal Plan(SWP) or Systematic Transfer Plan(STP)to debt funds to safeguard your capital.
Even though the market is in bull phase you should systematically exit from your mutual funds to avoid market crash before your goal fulfillment date.Example- If you are investing for your son’s higher education it is a non-negoitable goal, you should need that money exactly at that point of time, so you should either do Systematic Withdrawal Plan(SWP) or Systematic Transfer Plan(STP) before 1-3 years of your goal due date even though the market is in bull phase. Don’t be greedy as it is a non-negoitable goal you should defintely need that money at that time, so systematically exit from your mutual fund investments. Do remember this
Except for the above reasons,
- You should not redeem/exit from your mutual fund investments frequently
- By noticing short term volatility never exit from your mutual fund investments
- Don’t let your aspirations in danger by being greedy before your goal due date
- Don’t get swayed by the rumours revolving in the social media.Do your own analysis, if you can’t consult a good financial advisor who would guide you in turbulent times
- Do remember getting in and out of mutual funds frequently would ruin your long term goal aspirants
You would reach your goal only when you keep your two emotions-“Greed and Fear” in control. Don’t be too greedy or too fearful. Both emotions should be balanced, then only you would reach your goal