When is the Right Time to Redeem Your Mutual Funds?

Investing is all about ‘getting in’ and ‘moving out’ at the right time. Going by the law of probability, one has an equal chance of getting both right or wrong. Common sense dictates that one must make investment during lows of the market and exit at the highs of the market to earn a decent return. But the general tendency is to buy at high prices, when the stock is experiencing euphoric buying and sell at low prices when the stock is going through the phase of panic selling. Let us help you take the right decision to redeem your mutual funds at the right time.

A disciplined and consistent approach is key to investing with the aim to achieve the desired goals. Hence, we must minimize discretion in the decision-making process. Discussed below are certain guidelines to redeem mutual funds: 

When the Fund is Continuously Underperforming

While daily monitoring of the investment portfolio for long-term goals is never suggested, one must monitor the portfolio once in a while (every fortnight or monthly) for its performance in order to reach the desired investment objective. When one fund continues to underperform as compared to the benchmark index or other funds in the portfolio, it is a good time to consider redeeming the fund. But, in order to continue staying invested in the markets, one must always consider switching the fund instead of redeeming and getting the amount in the bank account.

However, one must be careful to track the performance over a longer tenure and not get swayed by a month’s underperformance or outperformance of the fund. 

When the Investment Objective of the Fund Changes

Such changes are not a regular feature in the industry. Investment decisions are mostly taken by us in tandem with the investment objective and investment profiles of the mutual funds. For example, an aggressive investor chooses to invest in a small and midcap fund while a conservative investor may choose to invest in the gilt fund investing only in Govt. debt securities.

Hence, when a large cap fund widens its investment horizon to small cap shares as well, you may consider redeeming the fund, if the daily volatility in the portfolio value affects you.

When the Fund Manager Changes

A fund manager is a professional money manager who manages the fund portfolio. He is the one who makes the investment decisions based on the market conditions which are best suited for the scheme and its investment objective. More often than not, the performance of the schemes is driven by the acumen of the fund managers.

 Even when the fund may be performing well in comparison to the benchmark indices and also against other funds, the outperformance may or may not be sustained if the existing fund manager moves to some other fund house. 

When Your Investment Objective is Met

One must plan for both short-term and long-term goals and make systematic investments to fund those goals. These goals may include planning for an exotic vacation, child’s education, child’s marriage, buying a house etc. One must invest in a diversified portfolio consistently over a period to build an investment portfolio matching the amount and tenure to fund these goals. Thus, once that investment objective is met, one must consider redeeming the fund to fulfill the desires and plans linked to that goal.

 Mutual fund investments can be redeemed by submitting a physical request at the investor service center of the fund house, the office of the Registrar and transfer agent like CAMS, Karvy etc. or by making an online request through fund house’s website or mobile application.

My decisions for my investment portfolio are logical and not emotional. What about yours?

Simardeep Singh is a Chartered Accountant based in Delhi. He loves sharing his knowledge about personal finance and investment. He blogs regularly at www.simardeep.com.
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