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? ›
How to withdraw/redeem?
- 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.
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 best way to withdraw money from mutual funds? ›
Utilizing a Broker or Distributor
If you invested through a broker or distributor, you could withdraw money from a Mutual Fund plan through them. Contacting your broker and requesting a withdrawal are options. You must complete and submit a withdrawal request form if you want to withdraw offline.
What is a good exit load? ›
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.
Can I exit a mutual fund any time? ›
Can I withdraw money from mutual funds anytime? Yes, you can withdraw money from most mutual funds anytime, unless they have a lock-in period.
Is it time to exit mutual funds? ›
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 safe exit in Groww app? ›
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. This feature allows you to exit all F&O positions if you hit your loss trigger price.
Can I withdraw all my money from 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 exit load in Groww? ›
An exit load is the fee AMCs (Asset management companies) charge the investor at the time of exiting or retrieving the units of the fund. The primary reason for levying exit load is to discourage investors from backing out and pulling out their investments before the lock-in period is over.
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. You can withdraw the entire sell amount after 10 AM on the next settlement day (T+1).
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. That is number one.
How much tax will I pay if I cash out my mutual funds? ›
Short-term capital gains (assets held 12 months or less) are taxed at your ordinary income tax rate, whereas long-term capital gains (assets held for more than 12 months) are currently subject to federal capital gains tax at a rate of up to 20%.
What is the exit charge for mutual funds? ›
Suppose you redeem 500 units of a scheme 4 months after your date of purchase. Let us assume that the NAV is Rs 100. The exit load will be = 1% X 500 (number of units) X 100 (NAV) = Rs 500. This amount will be deducted from the redemption proceeds which gets credited to your bank account.
What is the maximum exit load for mutual funds? ›
Exit loads for equity funds can range from 1% to 2% if the units are redeemed within a certain period, typically one year. Debt Funds: Debt mutual funds invest in fixed-income securities such as bonds and government securities.
What is the formula for exit load? ›
The client decides to redeem 1000 units of the mutual fund when the NAV is ₹60. The exit load of 1% will be deducted from the latest NAV, i.e. ₹60. The calculation will be as follows: (1% of ₹60) * 1000 units = ₹600. The redeemable amount would be ₹59,400 (₹60,000 - ₹600).
What is exit load in mutual fund Groww app? ›
An exit load is the fee AMCs (Asset management companies) charge the investor at the time of exiting or retrieving the units of the fund. The primary reason for levying exit load is to discourage investors from backing out and pulling out their investments before the lock-in period is over.
How do I exit an option position in Groww? ›
You need to cancel your open order and place the exit order at market price again. 2. As per Groww's risk policy, for a stock option, you cannot exit or take a fresh postion after 10 AM on the expiry day of that particular option. Your existing positions will be squared off automatically after 10 AM.
How do I cancel my mutual fund online? ›
If you invested in a mutual fund and activated SIP payments via an online distributor platform, you can use the platform to cancel the SIP. You can log in to the platform and click on the 'Cancel SIP' option for the fund you want to stop investing in from the upcoming methods.
