When an investor first chooses to invest in mutual funds, it is important to have a clear financial objective and a time horizon. For instance, an investor can decide to stay invested for three years with the aim of earning potential returns with a goal of purchasing of a car. The goal could also be more long-term like retirement planning. In these cases, the time to redeem a mutual fund investment would be when the financial objective is met and/ or the time horizon has lapsed. The units assigned as under a mutual fund scheme might also be redeemed if the investor’s financial goals have changed.
There might be a situation when the financial goal is met well before the intended investment horizon is reached. If this happens, an investor can choose to stay invested for the remainder of the time or redeem the mutual fund scheme investment at this point. Conversely, the time horizon might be complete, but the financial goal has not yet been accomplished. In a situation like this, the investor has the choice to stay invested for a while longer till their expectations are met, or they could choose to switch schemes and invest in one that better suits their financial objective. An investor might also decide to switch to a better performing fund if the current one consistently underperforms.
Staying invested for an extended period may prove prudent if the situation improves and the investment delivers as expected. However, there is no possibility of that happening if the investment is redeemed before the goal is met, which investors might want to consider. Investors also need to bear in mind that exit load (if any) and taxes might be applicable is some scenarios when redeeming a mutual fund investment.
In case of market volatility, one should not sell or redeem their investments in the fear of losing money. The redemption of the investment portfolio must be preferred only when one has reached his/her financial goals, and stopping the investment journey mid-way can certainly disrupt the entire financial plan that you may devised for yourself.
The choice to redeem a mutual fund investment should be made after carefully considering all the options. Decision-making is ideally done with an objective mind while setting emotions aside. A financial advisor can be consulted to help decide the best course of action as they might have more experience with reading the situation and what to expect in the near future. You can also register a Systematic Investment Plan or SIP to invest regularly in the markets without letting the emotional bias impact the financial plans.
Mutual Fund investments are subject to market risks, read all scheme related documents carefully.