The Buyt Desk
Nowadays investing and redeeming Mutual Funds is easy and can be done in a few clicks. There are a few factors to consider for maximizing the returns before redeeming.
To start your investment journey, Mutual Funds are a very good option. Gone are the days, when starting an investment in a mutual fund was a stressful process. Now, just in a few clicks, you can start investing online. Similarly even redeeming the mutual fund is equally easy and can be done online. With just a few clicks your money will be credited into your bank account. Earlier this was a stressful process as redeeming involved a lot of paperwork and took a lot of time to get your money into your account.
Redeeming Mutual Fund
You may face a few situations in life where you will be in need of money. Under such situations, you will have to sell or redeem your mutual fund investment. There is no written rule or best time to redeem your mutual fund. But there are a few factors that you need to consider to ensure that the investment is not negatively affected. It is advised to consider a few factors and situations before withdrawing your investment in mutual funds. Here are a few things to consider when you think of redeeming your mutual funds.
When should you redeem your Mutual Fund and what factors to consider?
Nearing investment goal – Mutual funds are famous because of their multiple benefits including easy buying and selling, management by financial experts and a diversified portfolio. Investors choose mutual funds to achieve their financial goals. If you are in need of money and nearing your investment goals, you can redeem your mutual fund investments. Financial experts advise investors nearing their investment goal to move their funds from equity mutual funds to debt funds so that there is liquidity. Short-term goals are best when you are just 2-3 years away from your financial goal deadline. A systematic transfer plan (STP) is more practical as investors will be able to reinvest part of their proceeds from one scheme to another which is by the same company just like SIP.
Goals modified – Mutual funds give good returns when invested for a longer term. That means the longer you invest your money in mutual funds, the bigger the returns. Your term depends on your financial planning and the goal to be achieved. You can start with short-term investments and then go for long-term investments based on your experience and plan. While doing so you can modify the asset allocation in your scheme. Long-term investments are more into equity funds while short-term ones are into low-risk options like debt funds. So as you modify your goals, you should change your investments. For this, you need to sell your current mutual funds and buy new ones as per your new goals.
Investment not doing well – The performance of mutual funds is tied to the market. So fluctuations in the returns are very common. Investing into mutual funds while trying to time the market may not work all the time. You should not worry much about your investment if it is a long-term investment. But you can look into and reconsider when other funds under the same category are doing great and performing much better. If that other fund is doing better for more than 2 years, then you can sell and reinvest in that performing fund.
Alterations in asset allocation – There are many asset types under mutual funds which include debt funds, equity funds, hybrid funds and many more. The category under which mutual funds fit determines their asset allocation. Most equity funds normally invest entirely in stocks while few segregate their allocation among stocks and the market (debt or domestic and foreign stocks). Your fund manager can alter the asset allocation but within the set limits. Asset allocations alter the returns as there are contrary returns from different asset classes. Even market fluctuations largely impact asset allocation. When such situations arise where your investment is not helping you in your financial plan, you may have to redeem the funds. When Mutual funds change the asset allocation, they must inform the same to all the unit holds and allow them to redeem the scheme at the current NAV (Net Asset Value) without any load.
Summing up
When your investment is not performing for a good duration, you may consider redeeming your mutual funds. When your investment alters its objectives which are not in line with your financial plan, you may consider redeeming your mutual funds. To diversify your portfolio you may consider redeeming a few of your mutual funds and reinvesting in other assets.
