When to withdraw your Mutual Fund investments?

Is your mutual fund investment yielding lower returns than you projected? Then you might be thinking about withdrawing your funds and investing them in some other funds where the returns look more alluring.

Now let us consider the opposite situation. Is your mutual fund investment doing exceptionally good and you can see considerable gains in just a short span of time? Hence, you are thinking about withdrawing your gains to make them safe.

As an investor, you might get impulsive with your investment decisions, but it is not always a good idea to withdraw your mutual fund investment every time you see a gain or loss.

Also, the longer you stay invested in a mutual fund, the better are the prospects of earning good returns on your investment:

If a person invests Rs. 1,00,000 in a mutual fund scheme and assuming the current rate of return on mutual fund is 9% then, he will get Rs. 1,29,503 at the end of 3 years, Rs. 1,53,862 at the end of 5 years and Rs. 1,82,804 at the end of 7 years which is maximum.

You should consider withdrawing from mutual funds only in these scenarios:

When there are changes in your personal financial goals:

If there is any financial emergency: In case of a financial emergency you require additional funds. You should utilize your emergency funds in such a situation. But, if you do not have one, there is no choice other than digging into your investments.

When you need to rebalance your portfolio: People generally have an investment mix based on their risk appetite and financial goals that they like to follow. So, if you have one, then you might need to review your portfolio from time to time and rebalance it to keep it aligned with your ideal investment mix which may require you to withdraw from your mutual fund investments.

When you achieved your specific investment target: If you have invested in a mutual fund with a specific target in mind like saving for your child’s college fee, buying a house, etc. Then, you can withdraw your mutual fund investment when your specific savings goals have been met.

Besides from changes in your personal financial goals, there can be changes in the fund itself that might make you think about withdrawing your mutual fund investments:

Change in fun's manager: You need to trust the fund’s manager skills and expertise to earn good returns on your mutual fund investment. Any changes in fund manager can create a red flag in your mind, but you should keep patience if there are no changes in the fund's goals and should monitor the performance of the fund for next few periods.

Change in fund's strategy: You invest in a mutual fund that is aligned with your financial goals. But, if your fund manager starts investing in securities that does not match the fund's original goals, then you may need to withdraw your money.

If your fund is not performing well: The performance of mutual funds is largely dependent on the movement of the stock market. So, if the fund in which you are investing is not performing well then, it may be possible that it is temporary due to short-term fluctuations and withdrawing your money immediately may not be a good idea.

But, if the fund is consistently underperforming for the last two to three years then, you can think about cutting your losses and withdraw your investments.

The bottom line:

Withdrawing from a mutual fund should be very well-thought and considerate decision. You invested in mutual fund with certain goals and target and to achieve those it is important that you keep your emotions in check and stay invested especially during the volatility swings in the market. Also, you should carefully consider the factors like the lock-in period, exit loads and taxation before taking any decision.