In the legendary Mahabharata, an incident involving Abhimanyu teaches us a valuable lesson about mutual fund investing.
Abhimanyu, while in his mother’s womb, learnt the art of Chakravyuham when his father, Arjuna, explained it to his mother. However, Arjuna never got around to completing the story and left out one crucial aspect: how to exit the Chakarvyuham. As a result, when Abhimanyu pierced into the Chakravyuham, he found himself trapped and had to sacrifice his life.
Similarly, when it comes to mutual funds, most discussions revolve around making investments. Little attention is given to the equally important topic of how to exit and protect your money.
In this blog, we will shed light on the often-overlooked aspect of disinvestment, helping you understand how to choose the right exit strategy.
Situations Where You Could Consider Exiting a Mutual Fund
You might want to exit a mutual fund in certain situations but need help figuring out how to. You might also often wonder when to withdraw money from mutual fund.
Hence, to help you out, here are some of the most common instances and what ways you could go for in those situations:
Achieving Financial Goals and Profit Booking
When you've successfully achieved your financial goals or are nearing their fulfilment, it's crucial to have an exit strategy to secure your gains and manage risk.
This includes considering profit booking as part of your overall approach.
- Assess if you have met or exceeded your target, considering factors like time horizon, expected returns, and market conditions.
- If you still have a considerable timeframe, consider gradually transitioning from growth-oriented funds to more stable and income-focused funds.
- If you require regular income, you can set up a SWP (Systematic Withdrawal Plan) to withdraw a specific amount from your mutual fund investment regularly, ensuring a steady stream of cash flow while preserving the principal.
- If you have a lump sum to invest or are shifting funds from one scheme to another, utilise STP (Systematic Transfer Plan) to systematically transfer a predetermined amount from one mutual fund to another, aligning with your changing investment needs.
- Explore other investment avenues like fixed deposits, bonds, or real estate to diversify your holdings and reduce risk.
Market Volatility and Risk Management
During periods of market volatility or when certain mutual funds face heightened risks, having a well-defined exit strategy becomes essential to protect your investments and mitigate potential losses.
- Evaluate the fund's performance over short-term, medium-term, and long-term periods to identify trends and consistency.
- Assess how the fund fares compared to its category peers and relevant benchmark indices to determine if it consistently lags.
- If a fund consistently underperforms over multiple periods and fails to deliver satisfactory returns, consider exiting the investment.
- Research and select funds with a similar investment objective but better track records and performance history to redirect your investments.
Changing Investment Needs or Risk Tolerance
Over time, your investment needs and risk tolerance may change due to life events, financial goals, or shifting market conditions. Adapting your mutual fund portfolio accordingly becomes crucial to align with your evolving circ*mstances.
- Understand your changing circ*mstances, including financial goals, investment timeframes, and risk capacity.
- Review your current mutual fund holdings and determine if they match your risk appetite and investment goals.
- If your risk tolerance has changed, consider reallocating your investments to funds that align with your new risk profile.
- Utilise strategies like STP to systematically transfer funds from one scheme to another, ensuring a smooth transition while optimising returns.
Change in Fund Attributes or Mandate
If the fundamental attributes of a mutual fund change, such as its investment style, portfolio composition, or underlying strategy, it may no longer align with your investment goals or preferences.
In such cases, considering an exit strategy is important.
- Stay informed about any changes in the mutual fund's prospectus or disclosures.
- Evaluate if the changes align with your investment objectives and risk tolerance.
- If the altered attributes no longer suit your preferences, it may be wise to exit the fund and explore alternatives that better align with your goals and preferences.
FAQs
Market Volatility and Risk Management
How to exit mutual fund in Groww? ›
Here's how to redeem from a mutual fund:
- Go to your Dashboard.
- Select the mutual fund you want to redeem from.
- Tap on the 'Redeem' button.
- Enter the amount to redeem.
- Tap on 'Confirm Withdrawal' The amount will take 3-4 working days to reflect in your bank account.
You must complete and submit a withdrawal request form if you want to withdraw offline. The state would be given to the Asset Management Company by the broker. On the other hand, you may also redeem online if the broker provides a service online through a site or mobile app.
What is the best way to withdraw money from mutual funds? ›
Through an asset management company or transfer agent: You can visit the website or the branch office of the asset management company (AMC) or the registrar and transfer agent (RTA) of your mutual fund and submit an online request or offline redemption request.
Is it a good time to exit mutual funds? ›
When it comes to equity, it is very important that, especially when you are thinking about long-term goals, you want to exit as soon as you have 2-3 years left approaching your goal and there are just 2-3 years to get there.
How much Groww charges for mutual fund withdrawal? ›
Groww charges ZERO fees for redeeming. However, the fund house may charge the following fees for redeeming: STT: Tax paid on the sale of equity-oriented mutual fund. STT is not charged when redeeming from a debt-oriented fund.
What is the exit charge on mutual funds? ›
Exit load in mutual funds refers to a fee levied by Asset Management Companies (AMCs) when investors redeem their mutual fund units before a specified period. It acts as a deterrent against premature withdrawals and aims to discourage investors from frequent trading, promoting stability within the fund.
What is the 8 4 3 rule in mutual funds? ›
The rule of 8-4-3 when it comes to compounding indicates a style of investment that accelerates growth with time. Initially, a corpus doubles within 8 years through an average annual return of 12% subsequently another doubling happens for the same period after another 4 years following its initial setting up.
How long should you hold mutual funds? ›
You should plan to hold your mutual funds for at least 5 years. In the short term stock and bond fund prices can be volatile. Yet, over the long term their prices typically go up. The instruments can deliver more stable returns if you increase the holding duration to 10 years or more.
What is the best time to sell mutual funds? ›
Five valid reasons to sell your mutual fund
- Goal achievement. If you've hit your financial target sooner than expected—say, saving for a car in two and a half years instead of five—go ahead and cash out. ...
- Changed circ*mstances. ...
- Rebalancing your portfolio. ...
- Fund underperformance. ...
- Change in the fund's DNA.
When you make a withdrawal from a mutual fund that is in a taxable account, you'll owe taxes based on how long you've owned those shares. Profits on shares held a year or less are taxed at the rate for short-term capital gains, which is the same as the rate on your other income and might be as high as 37%.
Are mutual funds taxable when withdrawn? ›
Equity Mutual Fund: SWP Example
The gains on your investments if withdrawn in the first year are treated as Short Term Capital Gains (STCG) and taxed at 15%. If the investment is redeemed after the first year, the gains are called Long Term Capital Gains (LTCG) and are taxed at 10%.
What is the 7 percent rule for retirement? ›
The 7% rule involves withdrawing 7 percent of your retirement savings each year. This strategy carries higher risk, especially during market downturns. It can lead to faster depletion of funds compared to more conservative approaches like the 4% rule.
How to exit mutual funds? ›
Mutual fund products essentially come with two exit options – voluntary exit at any time during the term of the fund or redemption upon maturity or after lock in. A voluntary exit (before or after lock in) may or may not have an exit load attached.
What is the 30 day rule for mutual funds? ›
A roundtrip is a mutual fund purchase or exchange purchase followed by a sell or exchange sell within 30 calendar days in the same fund and account. For example, if you purchased a fund on May 1, selling the fund prior to May 31 would incur a roundtrip violation.
Can I withdraw all my money from a mutual fund? ›
The answer is yes; however, there are certain things to keep in mind while withdrawing your mutual funds. Also, some types of mutual funds can be withdrawn only after a certain period.
How do I cancel a mutual fund in grow? ›
In the text menu bar, choose 'Systematic Transactions' and then select the “active” ones. The continuing systematic transactions will be visible to you. Each SIP row will have a Cancel link. Click the Cancel button and verify the cancellation.
How can I stop my mutual fund? ›
You must visit the mutual fund website to make the SIP payments. You must have your folio number and bank account details handy if you want to cancel the SIP. You should also have access to your login credentials to access the website. Once you enter the portal, select the SIP you want to cancel or pause.
How do you exit a position on Groww app? ›
Click on EXIT, then select the quantity and price at which you want to exit the position.
How do I get rid of mutual funds? ›
4 steps to selling a mutual fund
- Contact your financial advisor or mutual fund company. Get in touch with the advisor who sold you the fund, or someone in their company. ...
- Ask about any fees or charges. ...
- Decide how many units or shares you want to sell. ...
- Give instructions on what to do with the money.
