There is no doubt that mutual funds are a great investment option, especially for young investors. They serve as a stepping stone into the world of investing, requiring minimal management and monitoring once the investment is set up.
Your job begins by identifying a mutual fund that aligns with your goals, risk tolerance, return expectations, and liquidity needs. The process ends once you complete the KYC and provide bank details. After that, fund managers take over, using their expertise to manage the portfolio.
One thing that attracts most of them towards mutual funds is that profits and losses are shared equally among all participants. It's like when a class teacher scolds you for something, but your friends step in and take the blame as well. When there are several participants, the teacher usually treats the group more leniently. This shared nature of mutual funds provides reassurance to new investors.
Understanding Mutual Funds
You undoubtedly worry about performance, risk, and profitability when you invest your money. Most of the time, mutual funds deliver on these expectations, but not always.
Comparing mutual funds to equity is like comparing apples to oranges. They are not the same. Each has its advantages and drawbacks, and they follow different strategies for buying and selling.
A decline in the stock market will have a more direct impact on individual equities since stock prices fluctuate based on market conditions. On the other hand, mutual funds are not single entities. They are a mix of financial instruments—such as stocks, bonds, and other assets—that the fund manager selects.
Unlike stocks, mutual funds are long-term investments. So, a slight dip in the market should not prompt you to sell. Mutual funds are designed to weather market fluctuations because they represent a diverse portfolio spanning multiple sectors.
When should you actually consider selling Mutual Funds?
The exit strategy for mutual funds often boils down to the way the fund is being managed and performing. Some common reasons are as follows:
Under-performance of the fund
There is no doubt that mutual funds are long-term instruments, so if your investment is currently not performing, then it is advised to hold on and see where it goes. But if the fund has been stagnating and plunging for over a year or two, maybe it’s time to pack up. But before you do, it is advisable to check similar mutual funds or to a benchmark, just to make sure that your ship is not the only one sinking.
Change in fund manager
Often, investors feel reassured when their fund managers share similar ideals, styles, goals, and risk tolerances. This alignment fosters trust and confidence in them. But if the fund manager changes, it calls for careful monitoring of their investment practices. If you are not satisfied with the approach of the new fund manager and sense any negative effects on the fund, then you might consider switching to a new fund.
Achievement of goals or cash requirement
This is a personal choice. All investments start with a goal in mind and if you think that the goal has been achieved, then you can gladly exit the mutual fund. Another reason could be cash requirements. Mutual funds are liquid and can be cashed out easily.
Other reasons
Some other reasons to exit a mutual fund could be:
- You found a better investment opportunity.
- The fund becomes too big to be managed effectively and efficiently.
- You want to rebalance your portfolio.
How to Withdraw Money from Mutual Funds
Withdrawing money from Mutual Funds is simple and can be done in several ways:
- Through a Broker or Distributor: If you invested through a broker, contact them to request a withdrawal. You can do this offline by submitting a form, or online if the broker offers that option.
- Using Your Trading & DEMAT Accounts: If you invested via DEMAT and Trading Accounts, log in, choose the amount to withdraw, and submit your request. The funds will be transferred to your linked bank account.
- Directly with the Asset Management Company (AMC): You can redeem your mutual fund directly through the AMC, either by visiting a branch or using their website or mobile app.
- Through the Registrar and Transfer Agent (RTA): RTAs can also help you redeem your mutual funds, either offline or online.
How to Withdraw Money Online
- Go to the Mutual Fund’s website or the third-party platform you used.
- Select ‘Online Transactions’ and log in with your Folio Number and PAN.
- Choose the number of units to redeem.
- Confirm the transaction to complete the process.
SOLD! Now what?
After careful consideration, you exited your mutual fund investment. Generally, these are the steps that follow:
Redemption Process
The mutual fund units are sold back to the fund house, and the investor receives the redemption amount based on the prevailing Net Asset Value (NAV) of the fund on the day of redemption.
Settlement Period
There's typically a settlement period during which the redemption amount is processed. In India, this period is T+1, which means one day after the transaction date.
Transaction Charges
Some mutual funds in India may have exit loads or transaction charges associated with selling units, especially if they are sold before a certain holding period.
Tax Implications
Depending on the duration of holding and the type of mutual fund (equity or debt), capital gains tax may be applicable on the profits earned from selling mutual fund units.
Conclusion
Ultimately, the choice to sell your investments rests solely with you. There may be circumstances that necessitate liquidating your funds. It is advisable to approach this thoughtfully since mutual funds are quite profitable in the long run. After careful consideration of the pros and cons, make a decision to either go ‘jaane de yaar’ or ‘jaane nahi denge tujhe.’
Happy Investing!!!
