Informed investors can find plenty of information in the public domain to help them make informed investment decisions regarding mutual fund investments. However, one of the biggest challenges investors face is deciding what fund they should choose, their risk-taking capacity, the investment duration, and more. Though all these questions can be answered if you adopt a well-drafted and executed financial plan, one challenge still arises among the investors – when should they exit the mutual fund scheme? Usually, investors try to time the markets by selling their investments with the hope of reinvesting at lower prices, and when they are unable to time it, it creates chaos and panic, which might lead to a loss of wealth. Understanding when to exit from your mutual fund investment is essential to your investment process, as it can make or break your investment portfolio.


When is a good time to exit the mutual fund scheme?

Here are a few points that investor should keep in mind before considering exiting their mutual fund schemes:

1. Close to your financial goals? Try opting for a less risky investment option.

Whenever you are close to reaching your financial goals, you should first think of securing the capital accumulated by you until now. Doing this would help because your ability to take risks is now reduced. If your financial goals are achieved beforehand, you can withdraw and shift the funds to either a fixed deposit in a bank or a liquid fund. Either way, when you are one or two years away from your goal, you should move to a less risky investment option to make your equity component negligible.

2. Do you wish to earn regular income from your mutual fund investments and, at the same time, preserve your money? Opt for systematic withdrawal plans (SWP)

SWP is a highly tax-efficient way. It is most efficient to opt for a SWP plan rather than a dividend one. Choosing the SWP method helps you retrieve your investments in a phased manner. Then, you can transfer your mutual fund’s investment to your savings account.

3. Review and rebalance your investment portfolio regularly

The risk profile changes when your funds change. There can be many reasons for it happening, like a change in the fund manager, a change in the fund’s fundamental attributes (structure, investment pattern, etc.), or a change due to regulatory norms (SEBI changing criteria).

It would help if you had a prepared mindset, for such changes could occur and impact your investment portfolio anytime.

4. Is your mutual fund scheme consistently underperforming? You might consider switching to a new mutual fund scheme

Past performance shouldn’t be the only criterion for choosing a suitable mutual fund scheme for your investment portfolio. Instead, you might consider checking the system’s returns across different periods to understand how the fund performs across market cycles. However, if your system is constantly underperforming for an extended period, you might consider switching to another mutual fund scheme aligned with your investment portfolio. You might also compare the returns of your strategy against the other funds belonging to the same mutual fund category or underlying benchmark, which will give you a better picture of the performance of your system.

I am a writer, financial consultant, husband, father, and avid surfer. I am also a long-time entrepreneur, investor, and trader. For almost two decades, I have worked in the financial sector, and now I focus on making money through investing in stock trading.