What is the best time to exit mutual funds

At the outset, apologies for replying late to your queries.

Frankly speaking, there is no clear cut answer for your question. Having said that there could be various scenarios based on which you might think of moving out of a fund. Let us see what are these –

1. If there is no need of money and your fund is doing good you should remain invested in it simply because mutual fund investments are for long term. The other benefit of long term investing is power of compounding. The longer is the term, the better is the prospect of higher returns.

2. If you have invested with a goal in mind and you are nearing that goal or reached the goal, then you should move out of the fund and park the proceeds in a liquid fund.

3. In case you have invested in funds which are not performing well then you should move out of these funds and invest the proceeds in good performing funds.

4. In case you have achieved the expected returns and do not want to take any risk further you may move out and invest in safer instruments or liquid funds

5. In case you have invested in funds based on your asset allocation and it has exceeded the allocation then you might like to redeem some amount and rebalance the portfolio by investing the redeemed proceeds in other category of funds.

Let us understand this with an example – Suppose you have invested Rs. 5 Lakhs each in equity and debt funds based on your asset allocation of 50% equity : 50% debt. After 3 years, you find that 5 Lakhs invested in equity has become 7.50 Lakhs and 5 Lakhs invested in debt has become 6 Lakhs. Post this, you asset allocation has now changed to approx 55% in equity and 45% in debt. Therefore, you should redeem 75,000 from equity and invest the same in debt fund. Therefore, you will again come back to your original asset allocation of 50% equity and 50% debt.

We have given above few scenarios which you might like to follow in order to get the desired returns from your mutual fund investments. However, three things are key in mutual fund investing – You should invest according to your risk taking ability and thus know your asset allocation, Select good funds and remain invested for the long term to benefit from power of compounding and must review and rebalance your mutual fund investment portfolio at least once every year. Read - Why should you review your mutual fund portfolio

Please also read – How investing in equities reduces the long term risk and Why your investments should have a long term horizon

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