Planning To Redeem Mutual Fund? Consider These Factors Before Redeeming

Investment goal approaching

Among the many benefits of mutual funds, their simplicity in purchasing and selling, expert management, and built-in diversification mechanisms are some of the most important elements that make them the best choice for investors to achieve their future financial needs and goals. Therefore, you could redeem your investments if you need money and are getting close to the financial goal you were saving for.

Industry experts typically advise investors to switch from equities mutual funds to debt funds, which are liquid and suitable for short-term goals, when the goal deadline is two to three years away.

The most practical approach might be a Systematic Transfer Plan (STP). It enables investors to reinvest a portion of their proceeds from one scheme into another scheme run by the same mutual fund company, much like the SIP process does.

Change in goals

We are all aware that the longer one invests in mutual funds, the greater the chances of returns. Simply put, your chances of receiving bigger returns increase with the length of your investment. But different goals require varying amounts of time to be invested.

If you begin investing with a short-term objective in mind and decide after a few months that you would prefer to guide the investment toward a long-term objective, you are permitted to do so, but you must also make modifications to the asset allocation of the scheme. This is true because long-term goals necessitate investments in equity funds, whereas short-term investments will tend to favour safer options like debt funds. As a result, changing your goals could also be a good cause to sell your mutual funds.

Not performing well

Financial planners and advisers frequently warn against trying to time the market, and since mutual funds are products that are tied to the market, declining returns are quite common, especially in the near term.

However, you shouldn't worry about the performance of your fund until you've looked at how the other funds in the same category have fared or are performing. For you to exit a fund and move on, it should be a hint if it has been failing in comparison to its peer group for more than two years.

Change in asset allocation

Mutual fund schemes offer a variety of asset types such as equities funds, debt funds, hybrid funds, etc. A mutual fund scheme's asset allocation is determined by the category under which it fits. For instance, while the majority of equity funds typically invest entirely in stocks, other plans additionally divide their allocation between stocks and the rest of the market, such as debt or domestic and foreign stocks. While a fund manager may alter allocations, they must stay within the set limits.

According to experts, asset allocations typically fluctuate as a result of the divergent returns from different asset classes. Asset allocation is substantially impacted by market fluctuations as well. In such a situation, you could prepare to redeem the fund if it no longer serves your aims or is inconsistent with your risk tolerance.

In case Mutua Fund decides to permanently change the asset allocation, they have to inform unitholders and be given the option to leave the scheme at the current Net Asset Value (NAV) without any load.

Summing up

You might think about redeeming your assets if your fund is continuously doing poorly or if the scheme's objectives alter and they no longer align with your aims. Furthermore, selling some of them could offer the investor's portfolio a more diverse appearance if you discover that your portfolio contains a lot of funds of the same sort.