A few factors which are required to be considered to exit a particular mutual fund scheme are purely need-based, these could be as under:
Need for investing in less risky asset class after meeting financial goals
If the financial goals have been achieved, an investor can exit from the scheme and shift the corpus to a liquid fund or even a bank fixed deposit to preserve the corpus.
An investor can also look forward to switching to less risky funds where the equity component is comparatively low.
Need for regular income from the mutual fund scheme
To gain the maximum from a mutual fund scheme, an investor can look forward to following the tax-efficient Systematic Withdrawal Plan (SWP) rather than a dividend plan. It is possible to redeem (or liquidate) investments in a phased manner through SWP.
Need for rebalancing the investment portfolio
A fundamental change in a particular fund demands the need for rebalancing the portfolio considering the shift in risk profile. The change could be in the form of the fund manager, fundamental attributes of the fund, or regulatory norms.
Need to switch from a consistently underperforming scheme to a new fund
If a particular scheme is consistently underperforming for a prolonged period, look out for reasons and gauge whether the adverse factors would continue to persist. Then decide whether to exit or not.
Need in case of merging of Asset Management Company (AMC)
In a scenario where another fund house takes over the AMC in whose schemes an investor is invested—and the particular scheme gets merged with a similar scheme of the former. In this case, it is necessary to evaluate the scheme’s performance, objective, and holdings to keep a check on whether they have changed or not.
Need to address a financial emergency
In case of any financial emergency, when the fund in an emergency corpus is insufficient to deal with the situation, one can look forward to exiting from a scheme. It is also possible to pause monthly systematic investment plan (SIP) payments.
Overall, it is important to stay patient when it comes to investment in equity funds and stay on the path of asset allocation, and not be influenced by market timing.
Rajiv is an independent editorial consultant for the last decade. Prior to this, he worked as a full-time journalist associated with various prominent print media houses. In his spare time, he loves to paint on canvas.