When to exit from a Mutual Fund Investment

While everyone talks about investing in a mutual fund, there’s hardly anyone telling us about when to make an exit from a mutual fund scheme. Here are some pointers that would help you stay in control of your MF investments by indicating when to get out of the investment.

9 signs that you need to exit your mutual fund investment

  1. When you have reached your target
    Sound financial planning pushes us to set targets to each of our investments in different avenues. Goals may vary from person to person, depending upon our age, our financial commitments in future, our financial needs and a few more. So, if Mr. Richard has set a target of creating $3600 out of his $3000 worth investment in 10 years through an MF scheme and if he has achieved that within 8 years, it is time for him to get out of his MF investment and move on to the next phase of his financial goal setting and target achieving because he must put his saved 2 years to good use.
  2. When you have better avenues
    Once invested, it doesn’t mean that you should stay blind to the better investment avenues that you come across or the ones that have just made a debut. If at the time of your investments, Fixed deposits providing, say, 5%p.a. were the only alternate investment options but 4 years into your mutual fund investment that gives you an average of 10%(+/-2%) returns, there’s a new investment avenue open, say, corporate bonds that provide assured returns of 9.5% on your investment and are rated highly by the rating agencies like Standard & Poor or Moody’s, you certainly need to think over and make shifts.
  3. When the MF scheme has been under-performing
    Do not judge your MF investment if it performs poorly for 1 or 2 financial quarters of a year but if its not improving in a year’s time or you don’t see any reason why it will get better, you surely need to make a prompt exit.
  4. When the fund management has changed
    There are times when the Asset management company managing your MF has been bought by another AMC or there has been a merger of two AMCsand as a result the fund manager has been replaced or the fund managing strategy has changed or even in a normal scenario your fund is not being managed the way you want then you should look out for better ones even if you are half way in your investment period in an MF.
  5. When markets are at their best
    Your MF might be doing brilliant because of an upswing in the economy (which is visible through a steep rise in your units’ NAV) and so you may think of holding onto it for a little longer before you can encash a portion or whole of your unexpectedly high capital gains. But be wary of a delayed encashing before markets start to hit the lows.
  6. When markets and economy have taken a turn for the worse.
    If your investment is for a short period of up to 5 years, then you should be careful to pull out your money when you begin to see the economy going into a recession/depression phase.
  7. When you need money to fulfil a financial commitment
    If any financial emergency comes up while you are in the midst of your investment don’t think twice to exit the scheme and accomplish your commitments because the sooner you fulfil the needs the sooner you will be free from the commitment and you can start your investments again.
  8. When your life cycle has changed
    During each of the phases of our life our needs tend be different and so do our income earning and saving capacities. So, you must understand the need to keep shifting your investments during these phase changes. It may be either opting for a short term MF investment if you have many commitments lined up in front of you or shifting from an MF to a real estate investment in your mid-life or going from an equity based MF to a debt oriented MF as you are less-burdened or moving from a SIP to an SWP as you are hitting retirement and so on.
  9. When your gut feeling says “let's get out”
    Gut feelings are mostly underrated and ignored while making financial decisions. Although not always necessary but it is important for us to pay need to them occasionally. Moreover, we must realise that markets work on sentiments as much as they do on other quantifiable and physical factors.
Read More:
Advantages of investing in Mutual Funds
What is Expense ratio, entry and exit load in Mutual Funds
What is SIP in mutual fund with example?

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