When it is the best time for Mutual Fund Redemption?

Mutual Fund

Mutual Fund investment helps in building wealth and achieve your financial goals. Proper tracking of the mutual fund is very essential at least twice a year. Most importantly, you also must be aware of when should you go for mutual fund redemption. Based on the mutual fund performance, financial goal achievement, and other crucial factors, the ideal mutual fund redemption time depends. You can go for mutual fund redemption online mode or through offline mode.

Here are some pinpoints focussing on the best time for mutual fund redemption-

Consistence Mutual Fund Underperformance

One of the common reason behind mutual fund redemption is mutual fund performance. If the fund you have invested is not performing well, you can think of mutual fund selling. But temporary setback of the fund in the short term is quite normal. You must compare your fund’s performance with the benchmark and other top-performing mutual funds in the market. If all the funds are underperforming due to the market downturn, then it is not perfect for mutual fund redemption time. But if your mutual fund performance is not well for more than 1 year or so, then you can go for mutual fund redemption easily.

Financial Goal Achievement

The mutual Fund redemption time is favorable when you are close to your financial goal achievement. If your goal fulfillment is a year or 15 months later, then you can go for mutual fund redemption. Usually, people invest in equity fund to achieve long term goals like- buying your own home, kid’s education, business start-up. It is better you go for mutual fund selling before 1 year of the goal fulfillment because the fund might face loss due to market downturn. So, you can go for STP or SWP to a liquid or debt fund to avoid the volatility of your equity market.

Rebalance the Portfolio

To ensure high investment performance, you must track and review the asset allocation. Sometimes, you need to rebalance the portfolio for efficient asset allocation. Suppose, your investment portfolio includes 65% in equity and 35% in debt instruments. During the bullish market, the equity exposure gets raised to 80% which will change your original asset allocation. So, in that situation, mutual fund redemption time is ideal. You can easily opt for equity mutual fund selling and debt fund purchasing. So, change in market situation can lead to mutual fund redemption for portfolio rebalancing.

Transition in Investment Style

There is a certain investment style that is followed by the fund managers. Your fund selection mainly depends on the fund’s investment style, pattern and the risk profile. But to yield a higher return, the fund manager can change the investment style by increasing equity exposure. If your risk appetite does not match with the investment style, then you can go for mutual fund redemption. Though with the change in investment style might yield a higher result, but it may not be in sync with your investment profile. So, a change in investment style can lead to mutual fund redemption.

Financial Emergency

To overcome a financial emergency or any unforeseen situation, you can go for mutual fund redemption of your contingency or liquid fund. Do not go for mutual fund selling which is meant for certain goal achievement. Unlike post office investments, PPF or bonds, the mutual fund redemption time of open-ended fund does not have a lock-in period. So, you can easily go for mutual fund redemption online to meet any kind of financial emergency situation.

Portfolio Complexity

You may have too many many funds in your portfolio to build a huge corpus. But tracking the fund’s performance of more than 5 funds will increase the portfolio complexity rather than enhancing the diversification. So, you can go for mutual fund redemption of some funds to simplify the portfolio complexity.

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