If your mutual fund investments are giving you anxiety, we recommend visiting a doctor. But don’t withdraw just because it’s given you good returns or showing losses. Or the markets are high or low. Or it’s your girlfriend’s birthday. Withdraw when it’s absolutely necessary. Because the longer your money stays invested, the better will be the prospects for returns. So when should you withdraw?
Emergency: No, trip to Goa on the coming long weekend doesn’t count. You should ideally protect your Mutual Fund investments by keeping aside some emergency funds. But if you do not have such funds, go ahead and withdraw it.
Short Term Goals: If the reason you have been investing in Mutual Funds to achieve some life goals, like going on a holiday, buying a new car or a house, or blowing all your money in Las Vegas, it’s obviously fine to withdraw when the target is met.
Long term Goals: If you have been investing in Mutual Funds for 10-15 years for your child’s education or retirement, we recommend you shift all your money from long-term category to a short-term one, like debt funds, 3-4 years before you are going to withdraw the money to protect it from market volatility.
Under-performance: If the funds you had chosen didn’t turn out the way you expected, if they have been consistently underperforming over 2-3 years, not just over a few months, we recommend shift them into a better performing one.
There is another thing you must consider before you withdraw. The gain will be less than what you think because you will have to pay tax on it. So, withdraw when it’s absolutely necessary, not because you want to buy the next iPhone.
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*Mutual fund investments are subject to market risks, read all scheme related documents carefully.