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
Market Volatility and Risk Management
How to exit mutual fund in Groww? ›
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.
Is it a good time to exit 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 do I stop investing in mutual funds? ›
You may cancel your mutual fund SIPs offline by notifying your bank and the respective AMCs. You can also have your mutual fund agent do it for you. Request a SIP cancellation form from your asset management firm or through online Mutual Fund Registrar and Transfer websites such as CAMS and KFin Technologies Limited.
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.
What is the exit charge on mutual funds? ›
Exit load in mutual funds refers to a fee levied by Asset Management Companies (AMCs) when investors redeem their mutual fund units before a specified period. It acts as a deterrent against premature withdrawals and aims to discourage investors from frequent trading, promoting stability within the fund.
Is there a penalty for withdrawing 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 8 4 3 rule in mutual funds? ›
Summary. 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.
Debt funds may or may not have an exit load. However, one can ignore the expense by adjusting the investment tenure with the time period for which the fund charges an exit load. Same with equity funds. It varies but is usually around 1% if redeemed within the first 12 months.
How long should you leave mutual funds? ›
The average holding period for a mutual fund can vary but is typically around 3 to 5 years.
How much tax will I pay if I cash out my mutual funds? ›
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.
How to close a mutual fund in Groww? ›
Instead of using app, you can login to your Groww account through website. Then you can navigate to the Mutual Funds panel and choose your SIP which you wish to cancel. After selecting it, Cancel SIP option will be visible. Hope it helps.
How to exit mutual funds? ›
Mutual fund products essentially come with two exit options – voluntary exit at any time during the term of the fund or redemption upon maturity or after lock in. A voluntary exit (before or after lock in) may or may not have an exit load attached.
What is the 30 day rule for mutual funds? ›
A roundtrip is a mutual fund purchase or exchange purchase followed by a sell or exchange sell within 30 calendar days in the same fund and account. For example, if you purchased a fund on May 1, selling the fund prior to May 31 would incur a roundtrip violation.
How to get out 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.
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.
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.
However, if you have noticed significantly poor performance over the last two or more years, it may be time to cut your losses and move on. To help your decision, compare the fund's performance to a suitable benchmark or to similar funds. Exceptionally poor comparative performance should be a signal to sell the fund.
What are the disadvantages of mutual funds in Groww? ›
Mutual funds do not guarantee returns as they depend entirely on the market. Some mutual funds have a lock-in period of 3 years, and, therefore, money cannot be withdrawn before the stipulated time.
Is Zerodha better or Groww? ›
Groww has a small advantage over Zerodha regarding account opening fees because Groww doesn't charge any fees to open trading or Demat accounts. In contrast, Zerodha charges a one-time fee to open a normal Demat account.
Can I withdraw all my money from mutual fund? ›
The answer is yes; however, there are certain things to keep in mind while withdrawing your mutual funds. Also, some types of mutual funds can be withdrawn only after a certain period.
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.
You're allowed to sell your mutual fund holdings at any time after buying shares. But there may be consequences based on the type of mutual fund you own. For instance, some fund companies charge an early redemption fee if you sell your shares before a prescribed period of time.
Can I cancel mutual fund at any time? ›
Generally, investors can stop their SIPs at any time without any penalties, but it is advisable to check if there are any specific terms outlined by the mutual fund house regarding the discontinuation.
