When is the Right time to withdraw your Money from Mutual Funds

As we step ahead in careers and lives in general, we naturally feel the need for more money, a bigger financial cushion, more expenses, and so on and so forth. At the same time, we need to deal with decreasing savings, increasing stress and inflation, and so much more. One thing that every individual, including you and I are looking for, is the financial independence as well as living a quality life, which itself brings in the most prior thing in our lives these days, savings.

Fortunately, generating a decent amount of returns isn’t as daunting a task now, as mutual funds make this easier. But an investment is a game of strategy that you need to know the best, as, whoever executes it in the best way generates more wealth and adds more value to their investments.

Mutual funds are professionally managed investment funds, run by pooling the money from multiple investors. These investors can be anyone – either retail or institutional in nature.

The primary advantage that a mutual fund gives us is that it provides economies of scale, liquidity, a higher level of diversification. Above all, it is only managed by professional investors.

Earlier this year, the government made it mandatory for investors to link their Aadhaar card with their mutual fund account.

While this restriction no longer applies, it nevertheless is recommended to link your Aadhaar card, just in case the ruling is reapplied and Aadhaar linking is made mandatory. In such a scenario, if you have not linked your Aadhaar to your mutual fund account, you will not be able to withdraw your funds.

How to link your Aadhar to Mutual Funds

There are multiple ways to link Aadhaar to your mutual fund, depending on the registrar you’re dealing with. It’s recommended you link Aadhaar to your mutual fund across all registrars, as that will cover every possible mutual fund you may invest in. To understand the process in detail, read more about how to link Aadhaar to your mutual fund here.

In the equity markets, timing is everything. While it may always seem like a great time to buy mutual funds, there’s also a right time to withdraw your investments or mutual fund units. There are many investors who end up dumping their funds when they see a downfall in the market. Many also redeem their units when there’s an urgent requirement of money.

But, there are few who do not exit in the face of such scenarios, hopeful that the market will surely reverse soon. Unless they have researched well, they usually end up losing a large amount of money, which is why it is really necessary to know the parameters to look for, to identify the time to exit a mutual fund. 

Let’s take you through some major scenes to keep an eye on as a measuring stick to get your exit timing right for your investments.

When is the right time to withdraw your money from Mutual Funds

1. Once you have reached your investment targets, it’s time to leave. Before investing, every investor should ideally set a target investment goal. If your investment has reached a point where it has somehow already fulfilled your objectives, consider making your exit from the mutual fund – at least partially. Do not get greedy and overplay investment horizon for some more gains, or else you might simply end up losing a large amount of money.
2. The fund is a consistent underperformer. Track your fund’s performance constantly, as it is the best way to judge its results and can help you exit quicker instead of waiting to get unpleasant news later. You’ll get a better outlook of the mutual fund, and it’ll be easier for you to decide if the fund is delivering well enough for you to continue. It is very important to know that a temporary downfall in fortunes of a fund can happen even to the best of funds, and it should not be the absolute measuring stick for your exit from the fund. Check if the fund is constantly underperforming in comparison to its peers in the same category. If this is indeed true, exiting the fund may be the right option. Also, always compare a mutual fund with its peers in the similar category only.
3. The fund deviates from its major objectives. This change can happen only due to either of two reason – a sudden change in the investment profile or change in the fund’s investment objectives. It is important to be aware of that the fund managers usually take investment calls which might not be in complete sync with the entire objectives of an investment for the fund temporarily. If this change becomes regular, exit the fund right away.
4. The star fund manager leaves. You need to keep an eye on the fund if an important, effective fund manager leaves the fund. Fund managers can often be indispensable to the funds they manage and build quite a reputation for themselves. It could take you fairly long to understand the investment strategy taken by a new fund manager regarding the selection of the stocks, allocation of assets, and an entire investment cycle. If you feel that the new manager is changing strategies for good, obviously avoid exiting. But, if something does not feel right, the numbers just aren’t the same, and the fund is headed in a direction you disagree with, exiting from the fund is a good option. Maybe move to the fund the previous manager headed to?

Mutual funds are a solid way to invest and save more for a better and secure future. But they also require that you keep an eye on your returns and take decisions quickly enough when market conditions change. Like we said, investments are a strategy – a tactic in order to achieve what you really wish to. To keep your funds safe, make sure you keep a constant check on your fund and follow these simple tips to continue your terms with the mutual funds.