When to redeem your mutual fund investment

It takes a lot of analysis while making an investment decision. Ideally, even while exiting or redeeming an investment, an investor should thoroughly think and analysis why the scheme is underperforming. Moreover, investors should know when to redeem their investments.

Let’s look at three key situations when one can redeem fund or should redeem mutual fund investments

When you need money urgently

An unplanned event can put an investor in urgent need of money. If the investment goal for a particular fund is far away from the current scenario then one should first look into the contingency fund and protect these investments. But if the contingency fund is insufficient to complete the need then one should redeem mutual fund investments as per the need. However, while doing this one should always look into the tax implications and exit loads involved, if applicable.

When your goal is nearing accomplishment

When your investment goal is nearing, that is, it is about to complete or completed, one should redeem investments. However, while redeeming the investment one can use efficient ways like SWP, STP to time the market and avoid volatility during the penultimate situation. This gives you the same benefit of averaging just like SIP and also seems tax efficient.

When rebalancing is necessary

To achieve financial goals investor should visit their portfolios periodically and ensure proper asset allocation. Asset allocation is one of the most important aspect which is expected to be maintained according to the risk appetite and financial goal. If the divergence from original asset allocation is more than say 5-8 per cent, then investors can consider rebalancing it by redeeming some part of the inflated asset class and reinvesting it into other asset class that is lower this typically happens when equities run up sharply.

In the above financial situations one can consider redeeming mutual fund investments.