MF Query Board

Since the market is currently strong, should I redeem my mutual funds that I have invested in lump sum?- Gargi Palani [EasyDNNnews:PaidContentStart]

Investments in mutual funds are made to achieve a range of objectives. The duration of the goals ranges from short, medium or long. Investments might be risky or safe. However, investors frequently tend to sell their investments as a result of unfavourable external circumstances or poor choices. When goals need to be achieved, the portfolio needs to be consolidated. Or if the fund has underperformed for an extended period of time, investment advisers typically ask investors to redeem mutual fund assets. Let’s look at various situations in which one should refrain from redeeming their mutual funds. 

1) Need Money for Emergency — When they require immediate money, many investors sell their securities. Investors typically don’t factor in the costs associated with redemption. Additionally, the money is hardly ever reinvested. Investors either wait for the market to decline or anticipate future declines. Experts advise using loans against mutual funds to increase immediate liquidity. A loan secured by mutual funds can preserve investors’ long-term objectives, reduce costs associated with redemptions and enable assets to compound. As an OD facility, loans against mutual funds are offered against a lengthy list of authorised funds from various AMCs. Without visiting any branches, you can complete the whole application process as well as any service-related chores like amount withdrawal, repayments, security withdrawal and loan closure online.
 

2) MFs Not Doing Well — For long-term objectives, the majority of ordinary investors participate in equity mutual funds. A majority of them simply give up on their plans when the results are negative in value or unfavourable. According to Association of Mutual Funds in India (AMFI), 43 per cent of retail investors redeem equity mutual funds within the first two years. When investing for two years, investors had negative returns about 13 per cent of the time, according to a comparison of the five-year rolling return and the two-year rolling return for the last 20 years of Nifty 50. When investing for five years, investors experienced negative returns just 0.13 per cent of the time. As a result, experts advise avoiding premature redemptions and keeping invested for the long run.
 

 3) MFs are Positive but Goal not Achieved — Once the investing target is attained, booking profit is the best course of action. However, because the fund has provided strong returns, investors sometimes book profits before the objective is met. Such hurried redemptions prevent investors from taking advantage of the mutual funds’ full or higher potential return.
 

4) Found a Better Opportunity — Investors frequently come across a superior company or investment prospects. Opportunities may also arise in relation to specific costs, such as receiving a discount on a vacation package or the car you have your eye on. It is best to take a loan against mutual funds to raise cash and meet your short-term demands instead of redeeming if you have not budgeted for such unforeseen short-term expenses. The cost of borrowing with loans secured by mutual funds will be lower in comparison to the returns generated by such mutual funds if you are generating doubledigit annualised returns.
 

Therefore, seek advice from a professional or a financial advisor before making the choice to redeem mutual funds. Ask your advisor about a loan against mutual funds if you want to generate short-term cash.
 

I am quite new to mutual funds. For the next 12 years I wish to put aside Rs 5,000 per month for my child’s higher education. What mutual fund strategy should I pick? What kind of risk should I accept given that it is for education purposes? - P Poornima
 

One, we have always believed that investors should be specific about their objectives. In other words, your goals ought to be measurable. You can learn the current cost of the educational stream you believe your child might be interested in taking. Then, if you want to be more accurate, take taxes and inflation into account. For instance, if the course costs ₹10 lakhs right now, you should account for annual inflation of let’s say 8 per cent to reach a reasonable goal after 12 years. To pay for the training in this instance, you would require roughly ₹20.12 lakhs. Next, find out how much you must invest each month to build the goal corpus. In the prior example, you must set aside ₹6,244 each month.

Secondly, try to determine your risk profile. To pay for your child’s higher education, you can think about investing in equity mutual funds. However, you must select the appropriate mutual fund category based on your risk tolerance. For instance, if your risk tolerance is low, you should pick Large-Cap funds. The best mutual funds to choose if your risk tolerance is moderate are multi-cap funds. Consult a mutual fund advisor for assistance if this is your first time investing and you are new to the process. An advisor would assist you to maintain your money and provide you with individualised guidance throughout any market crises. 

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