When to withdraw your Mutual Fund investments?

Nutan Gupta

03 Jul 2017

Is your mutual fund investment yielding lower returns than you projected? Then you might be thinking about withdrawing your funds and investing them in some other funds where the returns look more alluring.

Now let us consider the opposite situation. Is your mutual fund investment doing exceptionally good and you can see considerable gains in just a short span of time? Hence, you are thinking about withdrawing your gains to make them safe.

As an investor, you might get impulsive with your investment decisions, but it is not always a good idea to withdraw your mutual fund investment every time you see a gain or loss.

Also, the longer you stay invested in a mutual fund, the better are the prospects of earning good returns on your investment:

If a person invests Rs. 1,00,000 in a mutual fund scheme and assuming the current rate of return on mutual fund is 9% then, he will get Rs. 1,29,503 at the end of 3 years, Rs. 1,53,862 at the end of 5 years and Rs. 1,82,804 at the end of 7 years which is maximum.

You should consider withdrawing from mutual funds only in these scenarios:

When there are changes in your personal financial goals:

If there is any financial emergency: In case of a financial emergency you require additional funds. You should utilize your emergency funds in such a situation. But, if you do not have one, there is no choice other than digging into your investments.

When you need to rebalance your portfolio: People generally have an investment mix based on their risk appetite and financial goals that they like to follow. So, if you have one, then you might need to review your portfolio from time to time and rebalance it to keep it aligned with your ideal investment mix which may require you to withdraw from your mutual fund investments.

When you achieved your specific investment target: If you have invested in a mutual fund with a specific target in mind like saving for your child’s college fee, buying a house, etc. Then, you can withdraw your mutual fund investment when your specific savings goals have been met.

Besides from changes in your personal financial goals, there can be changes in the fund itself that might make you think about withdrawing your mutual fund investments:

Change in fun's manager: You need to trust the fund’s manager skills and expertise to earn good returns on your mutual fund investment. Any changes in fund manager can create a red flag in your mind, but you should keep patience if there are no changes in the fund's goals and should monitor the performance of the fund for next few periods.

Change in fund's strategy: You invest in a mutual fund that is aligned with your financial goals. But, if your fund manager starts investing in securities that does not match the fund's original goals, then you may need to withdraw your money.

If your fund is not performing well: The performance of mutual funds is largely dependent on the movement of the stock market. So, if the fund in which you are investing is not performing well then, it may be possible that it is temporary due to short-term fluctuations and withdrawing your money immediately may not be a good idea.

But, if the fund is consistently underperforming for the last two to three years then, you can think about cutting your losses and withdraw your investments.

The bottom line:

Withdrawing from a mutual fund should be very well-thought and considerate decision. You invested in mutual fund with certain goals and target and to achieve those it is important that you keep your emotions in check and stay invested especially during the volatility swings in the market. Also, you should carefully consider the factors like the lock-in period, exit loads and taxation before taking any decision.

Have Referral Code?

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Why to Choose Mutual Funds Instead of Directly Investing Into Equities?

Whether to invest in equities or mutual funds is a question that has plagued every investor. As someone who needs the best value for his/her investment should you invest in equity directly or via mutual funds?

Let’s start by first understanding what these two terms ‘equities’ and ‘mutual funds’ stand for-

Equities- Equities generally represent ownership of a company. If you own any equity in a company, you are a part owner of the said company (depending on how much equity you own).

Mutual Funds – It is an investment scheme which is professionally managed by an asset management company. It pools together the resources of a group of people and invests their money in equities, debentures, bonds and other securities.

Why choose mutual funds over equities?

For people who’ve never invested in either stocks or mutual funds, it is hard to know which is better and where to start. Broadly speaking, if you are a novice investor, mutual funds are not only less risky but also way easier to manage. Here are some ways in which investing in mutual funds is beneficial as opposed to investing in equities -

Diversification

Mutual funds provide more diversification as compared to an individual equity stock. When you invest in equity, you are investing in a single company which has its inherent risk. For example, if you invest Rs.20,000 in buying equities of one company, you could face a total loss if that particular company performs poorly in the market.  

If you invest the same amount in mutual funds, it will be invested in different kinds of stocks and financial instruments, high-risk and low-risk both, so you might not face total loss even if one company does poorly.

Scale of Investment and Lower Costs

For an individual investor buying and selling stocks is a difficult task due to its high price. Thus, any gains made from stock appreciation are nullified if the overall trading costs are considered. Comparatively with mutual funds, as the money is pooled from a large number of investors, the cost per individual is lowered.  

Another advantage of mutual funds is that you don’t need to invest large sums of money. Buying equities for a profitable venture needs huge amounts of money, a minimum of few lakhs. With mutual funds, you can start with Rs.1000 and earn profits on that as well.

Convenience

Keeping an eye on the markets everyday is a time-consuming business, especially if you are investing as a side gig. There are people who spend their lives studying the market and still end up sustaining heavy losses. Though investing in mutual funds does not guarantee high returns, it is stress-free and needs less work as compared to investing in equities.

To sum it up

It is important to remember that mutual funds have their own disadvantages as well. Thus, as with any financial decision, educating yourself and understanding the suitability of all the available options is the ideal way to invest. 


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When to withdraw your Mutual Fund investments?

Nutan Gupta

03 Jul 2017

Is your mutual fund investment yielding lower returns than you projected? Then you might be thinking about withdrawing your funds and investing them in some other funds where the returns look more alluring.

Now let us consider the opposite situation. Is your mutual fund investment doing exceptionally good and you can see considerable gains in just a short span of time? Hence, you are thinking about withdrawing your gains to make them safe.

As an investor, you might get impulsive with your investment decisions, but it is not always a good idea to withdraw your mutual fund investment every time you see a gain or loss.

Also, the longer you stay invested in a mutual fund, the better are the prospects of earning good returns on your investment:

If a person invests Rs. 1,00,000 in a mutual fund scheme and assuming the current rate of return on mutual fund is 9% then, he will get Rs. 1,29,503 at the end of 3 years, Rs. 1,53,862 at the end of 5 years and Rs. 1,82,804 at the end of 7 years which is maximum.

You should consider withdrawing from mutual funds only in these scenarios:

When there are changes in your personal financial goals:

If there is any financial emergency: In case of a financial emergency you require additional funds. You should utilize your emergency funds in such a situation. But, if you do not have one, there is no choice other than digging into your investments.

When you need to rebalance your portfolio: People generally have an investment mix based on their risk appetite and financial goals that they like to follow. So, if you have one, then you might need to review your portfolio from time to time and rebalance it to keep it aligned with your ideal investment mix which may require you to withdraw from your mutual fund investments.

When you achieved your specific investment target: If you have invested in a mutual fund with a specific target in mind like saving for your child’s college fee, buying a house, etc. Then, you can withdraw your mutual fund investment when your specific savings goals have been met.

Besides from changes in your personal financial goals, there can be changes in the fund itself that might make you think about withdrawing your mutual fund investments:

Change in fun's manager: You need to trust the fund’s manager skills and expertise to earn good returns on your mutual fund investment. Any changes in fund manager can create a red flag in your mind, but you should keep patience if there are no changes in the fund's goals and should monitor the performance of the fund for next few periods.

Change in fund's strategy: You invest in a mutual fund that is aligned with your financial goals. But, if your fund manager starts investing in securities that does not match the fund's original goals, then you may need to withdraw your money.

If your fund is not performing well: The performance of mutual funds is largely dependent on the movement of the stock market. So, if the fund in which you are investing is not performing well then, it may be possible that it is temporary due to short-term fluctuations and withdrawing your money immediately may not be a good idea.

But, if the fund is consistently underperforming for the last two to three years then, you can think about cutting your losses and withdraw your investments.

The bottom line:

Withdrawing from a mutual fund should be very well-thought and considerate decision. You invested in mutual fund with certain goals and target and to achieve those it is important that you keep your emotions in check and stay invested especially during the volatility swings in the market. Also, you should carefully consider the factors like the lock-in period, exit loads and taxation before taking any decision.

Have Referral Code?