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
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.
Can I withdraw all my money from a 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.
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.
How much Groww charges for mutual fund withdrawal? ›
Groww doesn't charge any money for withdrawals. The money will be transferred to your account through NEFT and will take 1 working day to reflect in your bank account.
Should I exit mutual funds now? ›
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.
What is the best exit load for a mutual fund? ›
The best exit load for a mutual fund is one that is low or non-existent. The exit load is a fee charged by mutual funds when an investor sells or redeems their units before a certain period of time has elapsed. It is usually a percentage of the Net Asset Value (NAV) of the mutual fund units held by investors.
What is the 8 4 3 rule in mutual funds? ›
Learn about the 8-4-3 rule of compounding, where investments double within 8, 4, and 3 years, showcasing exponential growth. It emphasizes staying dedicated to investment plans, guarding against inflation, and adapting to market changes.
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.
Taxes on Mutual Fund Long-Term Capital Gains – Tax Year 2021 (filed in 2022)
| Status of Filer | Single | Married, Filing Separately |
|---|
| 0% | $0 to $40,400 | $0 to $40,400 |
| 15% | $40,401 to $445,850 | $40,401 to $250,800 |
| 20% | $445,851 and higher | $250,801 and higher |
Mar 14, 2022
What is the 7 Percent Rule? In contrast to the more conservative 4% rule, the 7 percent rule suggests retirees can withdraw 7% of their total retirement corpus in the first year of retirement, with subsequent annual adjustments for inflation.
Why am I not able to withdraw money from Groww? ›
When you add funds to Groww, they are immediately available for investing. However, they can only be withdrawn after 1 working day. 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.
How do I get my money out of mutual funds? ›
The redemption of mutual funds can be done via online or offline methods. In order to redeem funds through offline mode, investors needs to submit a duly signed redemption request form to the AMC's or the Registrar's designated office.
How do I exit from a mutual fund? ›
Here are some common ways to exit a mutual fund investment:
- Redeem Mutual Fund: As discussed earlier, redeeming mutual funds is a common way to exit a mutual fund investment. ...
- Switch Mutual Funds: Investors can also choose to switch their mutual funds from one scheme to another within the same fund house.
If you're under age 59-1/2 when you cash out, you may have to pay a 10% early withdrawal penalty on the taxable portion of your distribution.
How to withdraw money from Groww mutual fund? ›
Once you login to Groww, tap on 'You' and then tap on your 'Groww balance'. Enter the amount you want to withdraw and tap on 'Withdraw' And done! The withdrawn money will be credited to your account within 24 hours. Note: If the amount is more than 25,000 then it will process along with the bank working hours.
How to get money back from mutual funds? ›
You can easily redeem your mutual funds directly through the Asset Management Company (AMC) or via a distributor. Simply visit the AMC's website or get in touch with an authorised distributor, provide your folio number, and the amount or number of units you wish to redeem.
How to withdraw only profit from mutual funds? ›
Investors can redeem in part by specifying an amount or the entire corpus by choosing the option “All units”. Investors can also choose to redeem only the gain and keep the principal invested, or only that portion of the units that qualify for LTCG to minimise the tax implication.
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.
You can choose to do this if you feel like the fund isn't working for you or if you want to invest in other instruments. To cancel your SIP, filing a stop request is necessary. This request needs to be made in writing and should be addressed to the mutual fund house you are associated with.
How do you exit a position on Groww app? ›
On your phone, press on the position. You will be able to see the 'Exit' option. On the website, press on the 3 dots beside the position. You will be able to see the 'Exit' option.
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.
