When’s the Right Time to Redeem Your Mutual Fund Investments?

The tricky aspect of mutual fund investments is not just choosing the right fund, but finding the right time to redeem the units is another. Investors are often not sure as to when the right time is to sell their mutual fund holdings. With rapid developments in markets and global conditions, mutual fund investments are always subject to some risk. 

Despite having a set goal ahead, you may have to prematurely withdraw your investments to meet financial requirements that arise without prior indication. Apart from that, unfavourable market conditions and switching between funds due to change of goals are the other possible reasons that make you sell your mutual fund units. 

However, you may not be sure if your decision to redeem your mutual fund units is right or not. Markets may seem unfavourable today, but it may turn out to be conducive tomorrow. Similarly, markets looking promising today might collapse tomorrow. 

The following are some of the scenarios in which you may redeem the mutual fund units:

1) When your goal has been met

Investments are made with a view of meeting specific goals. If your investment has earned enough to achieve the purpose behind your investment, it may be the right time to redeem your units. However, if you don’t need the entire amount accumulated in your mutual fund account, you can only withdraw the amount that is needed and let the remaining stay invested for some more time. 

2) Emergency

Personal emergencies can occur at any time, with little to no signs. In this case, if the only option you are left with to fight the emergency is your mutual fund investments, then you got no choice but to redeem it. Therefore, it’s advisable to always park some amount in your savings bank account so that you don’t rely entirely on investments when an emergency arises. Also, you can consider availing suitable insurance policies to cover unexpected expenses such as a medical emergency. 

Also Read: Here’s When You Should Rejig Your Mutual Fund Portfolio

3) Change in investment objective

If there is a change in your investment goal and if it is no more in line with the objective of the fund, it makes sense to exit the current fund and enter a relevant one. For example, if you invest in an equity fund with a view of buying a new car and now if you like utilising the same for your retirement, it makes sense to exit equity fund and shift the same to a debt fund. 

4) Rebalancing the portfolio

You may have predominantly invested in a particular class of mutual funds, say equity funds. Now, you may feel like diversifying your portfolio. In this case, you can shift units from your equity funds to a different category such as debt funds. Having a blend of debt and equity is essential to keep market risk and volatility at bay. 

You should note that redeeming mutual fund units come with exit load and other relevant charges. In addition, it is advisable to stay invested for as long as possible to reap the benefits of the scheme to the fullest. 

For any clarifications/feedback on the topic, please contact the writer at vineeth.nc@cleartax.in.