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 may cancel your mutual fund SIPs offline by notifying your bank and the respective AMCs. You can also have your mutual fund agent do it for you. Request a SIP cancellation form from your asset management firm or through online Mutual Fund Registrar and Transfer websites such as CAMS and KFin Technologies Limited.
What is the best way to withdraw money from mutual funds? ›
Utilizing a Broker or Distributor
If you invested through a broker or distributor, you could withdraw money from a Mutual Fund plan through them. Contacting your broker and requesting a withdrawal are options. You must complete and submit a withdrawal request form if you want to withdraw offline.
What is the best time to withdraw 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. That is number one.
Is it time to exit mutual funds? ›
Market Volatility and Risk Management
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.
Can I exit a mutual fund any time? ›
Can I withdraw money from mutual funds anytime? Yes, you can withdraw money from most mutual funds anytime, unless they have a lock-in period.
What is safe exit in Groww app? ›
Safe Exit is a newly launched feature on Groww, especially built for F&O traders. It is a risk-management solution that automatically triggers orders to close open positions in futures and options when the total losses for the day reach a level a trader has set.
What happens if you exit from a mutual fund? ›
So, it is treated as a redemption and hence there is a tax implication and so, if it is an equity fund, if you are exiting before one year, it is going to be taxed at 15% and if you are exiting after one year, it is going to be taxed at 10% post accumulative gain across your equity investments of Rs 1 lakh.
Can I withdraw all my money from mutual fund? ›
You generally can withdraw money from a mutual fund at any time without penalty. 7 However, if the mutual fund is held in a tax-advantaged account like an IRA, you may face early withdrawal penalties, depending on the type of account and your age at the time.
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.
Can I withdraw all money from Groww? ›
After a sell transaction, 80% of the delivery sell amount is available for investment after 30 minutes, and the remaining 20% is added to your Groww balance by the end of the day. You can withdraw the entire sell amount after 10 AM on the next settlement day (T+1).
Is it good to withdraw profit from mutual funds? ›
Should you withdraw your profits from mutual funds? The simple answer is 'No' until your goals are not fulfilled. Mutual funds have different types such as equity, debt, and gold. And based on your time horizon you should invest in different types of mutual funds.
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 do I know if my mutual fund is doing well? ›
By comparing against benchmarks, checking expense ratios, studying fund history, analyse mutual fund portfolio strength, examining turnover ratios, comparing maturity periods, and evaluating risk-adjusted returns, you can gain valuable insights into your investments.
When to take profit from mutual funds? ›
Profit booking closer to a financial goal helps to safeguard the goal corpus. Profit booking is best done in a systematic way to rebalance the portfolio on an annual basis, if the asset allocation deviates by say more than 10%.
Can I withdraw my mutual fund anytime in Groww? ›
Yes, you can redeem your mutual fund investments any time you want. Groww does not charge for this.
What is exit load in mutual fund Groww app? ›
An exit load is the fee AMCs (Asset management companies) charge the investor at the time of exiting or retrieving the units of the fund. The primary reason for levying exit load is to discourage investors from backing out and pulling out their investments before the lock-in period is over.
Can I close my mutual fund account online? ›
Yes, most mutual fund companies provide the option of cancelling SIPs online through their websites and mobile apps.
What is the exit charge for mutual funds? ›
1% exit load in mutual funds refers to a fee charged by mutual funds when an investor sells or redeems their units before a certain period of time has elapsed. The exit fee is usually a percentage of the Net Asset Value (NAV) of the mutual fund units held by investors.
