When Should you Redeem your Mutual Fund Investment?

when to Redeem from Mutyal fund Investment

While it is always suggested to “Hold your Mutual Fund Investments” for the long term, when it comes to investing in equity funds, for potential returns.

However, there are some instances when redeeming an equity fund is a must.

  • My fund has not been giving any returns since last few months, should I exit?
  • Now my fund has gone up, should i book profit and redeem from it?
  • My Mutual Funds where i have invested neither gained any returns nor lost, so should I redeem them?

Many of these questions frequently come in mind, when your investment in Mutual funds doesn’t perform as per your expectations. Is there really a right time to exit or redeem from equity funds? Yes, there are, and to know when to exit from your equity mutual fund is a crucial aspect for investing. While not every bit of Bad news in the Equity market should make you stand on your toes, the following are some of the reasons when you should exit or redeem from your mutual fund investments.

When your financial Goals are approaching

Why do we invest? One could save for his/her retirement, or others could for his/her child? There could be many reasons for investors to invest? But, assume you were saving for a particular financial goal, say, collecting a corpus for your child in equity funds. And, the year when you required that money, equity market got hit by the recession, and therefore, it impacted the equity mutual fund NAVs. Then this situation will make you worried because you were saving this amount for a particular financial goal for a long time. 

Would you like this ever happen to you? No!

However, don’t forget in the past, it has already happened with many of us, remember a year of global recession 2008, when in just 14 months equity market dropped by more than 50% and entire equity portfolio get heavily impacted due to this.

So, what is the solution?

If your financial goal, you are saving money for, are approaching, it makes sense to exit from an equity mutual fund and move that amount into safe asset class like Debt funds. However, ensure you exit from it systematically and start an STP (Systematic Transfer Plan), which is the facility by the fund house where you can shift your invested amount from one fund to another fund at a periodic interval. This way, you will not have to confront any unforeseen market volatility, and you book the profit until that point on your invested amount.

Ideally, you should redeem your equity fund at least two years before attaining the financial goals, even for retirement, you can start this process earlier.

When your Fund Mandate has changed

This is the second and most important reason could be to exit from the funds. If your Fund has changed its mandate or Fund objectives, then analyze that new Fund fits into your goals or time frame, if it does not, switch it to another fund.

For instance: Mirae asset India Equity Fund, which was the Multi-cap Fund earlier, changed into Mirae asset India Large-cap fund. Multi cap fund can invest in all market sizes- Large-cap, Mid-cap, or Small cap as per the market condition. Now, after these changes happened, this Fund has to invest 80% at least in a Large cap only.

When Fund is not performing consistently

If the equity fund where you have invested, is not performing consistently, you may consider selling it and start with another fund. However, don’t do that in a hurry. Most of the investor looks at the last six months and one-year returns and get disappointed by looking negative returns on their portfolio, even sometimes they make an irrational decision and stop their investments.

Ideally, you should give enough time to equity funds to see how the fund is performing and compare it with its benchmark. Do remember; Recent underperformance should not be the base of your decision to exit from the fund. Look at the fund consistency or how it has performed in different market cycles.

Hope it helps!

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