Not All Exits Are Bad
Just like you wouldn’t keep clothes that don’t fit anymore, sometimes you need to exit mutual fund investments. The key is knowing when to exit for the right reasons, not emotional ones.
Good Reasons to Exit Your Mutual Fund
Reason 1: Your Goal is Achieved
When to Exit: Your investment has reached your target amount
Example:
- Goal: ₹5 lakhs for child’s education in 10 years
- Current value: ₹5.2 lakhs in 8 years
- Action: Exit and move money to safer investments
Why This Makes Sense: You’ve achieved what you wanted. No need to take further risk.
Reason 2: Fundamental Change in Fund Strategy
Red Flags:
- Fund manager changes investment approach completely
- Fund house merges with another company
- Investment objective changes significantly
- Fund starts investing in different sectors/companies
Example: A large cap fund that suddenly starts buying small cap stocks is no longer what you signed up for.
Reason 3: Consistent Underperformance
When to Worry: Fund performs worse than similar funds for 2-3 years continuously
How to Check:
- Compare with 4-5 similar funds
- Check benchmark performance
- Look at rolling returns, not just one-year returns
Example: Your large cap fund gives 8% returns while similar funds give 12% for 3 years straight.
Important: Don’t exit based on 6-12 months performance!
Reason 4: Your Risk Profile Changes
Life Changes That Affect Risk Tolerance:
- Getting older (need more stability)
- Job loss or income reduction
- Health issues requiring emergency funds
- Family responsibilities increase
Example: You’re 25 and invested in aggressive equity funds. At 50, you might want more balanced approach.
Reason 5: Better Investment Opportunities
When It Makes Sense:
- New fund category becomes available (like international funds)
- Tax law changes make other investments more attractive
- Interest rates change significantly
Caution: Don’t chase last year’s best performer. That’s not a good reason to exit.
Bad Reasons to Exit (Avoid These!)
Bad Reason 1: Short-term Market Fall
Why It’s Wrong: Markets go up and down. That’s normal.
Example: Market falls 20%, your fund value drops from ₹1 lakh to ₹80,000. This is temporary if you’re investing for long-term.
What to Do Instead: Stay calm, continue SIPs. You’re buying more units at lower prices.
Bad Reason 2: Fear of Losing More Money
The Emotion: “I’ve already lost ₹10,000, what if I lose ₹20,000?”
The Reality: If you exit now, your loss becomes permanent. Markets recover over time.
Historical Fact: Every major market fall in India has recovered within 2-3 years for diversified funds.
Bad Reason 3: Need Money for Shopping/Luxury
Why It’s Wrong: Mutual funds are for long-term goals, not impulse spending.
Better Solution:
- Keep separate emergency fund for unexpected needs
- Plan and save separately for wants
- Don’t touch goal-based investments
Bad Reason 4: Friend’s Fund Performed Better
The Problem: Every fund has different performance cycles.
Example: Your fund gave 10% while friend’s gave 20% last year. But over 5 years, your fund might have better returns.
Solution: Stick to your plan. Don’t jump funds based on short-term performance.
Conclusion
Exiting mutual funds is an important skill. Do it for right reasons with proper planning. Remember, the goal is not to never exit, but to exit wisely when needed. Most importantly, don’t let emotions drive your exit decisions!
