How to withdraw lumpsum in stages and what is the right time to withdraw it?

When it is about mutual funds, note that you can find enough information in the online domain that can help you to make your investment decision. There is information linked with how and when to invest, which fund to select, how to select the fund, the risk involved in various mutual funds, what is lump sum mutual fund, how to compute mutual fund returns through a lump sum calculator, etc. However, there is not much on how you can exit your lump sum mutual fund, which generally pushes you into a dilemma to decide the right time. Having a slight conviction about the exit strategy is relevant when the markets are correct. In case it does not, you as an investor may panic and leave the market depending on emotional sentiments instead of a well-planned strategy. 

Many times, you try and time the markets by redeeming your full investments in hopes of re-invest the same at lower levels. This is one of the classic examples of timing the market. Also, at times, you may tend to treat your mutual fund investment like stocks. In the case of stock, it can be overpriced or underpriced, and hence, there may be a case to exit your investment in stocks at a high value. However, in the case of a mutual fund, as it contains a basket of various investment products and the price of every unit reflects the product’s value in the scheme’s basket, the question of undervaluation and overvaluation does not come up. 

Thus, knowing when to exit your mutual fund investment is very important as this has the potential to make or break your goal of wealth building. Exiting your lump sum mutual fund investment must not be based on market movements, except in the scenario of financial exigencies. You must do it after considerable planning. You may use an online lump sum calculator to determine how long you may take based on the present market level to attain your goal before you decide to redeem it way before your deadline for your financial goal. Read on to understand the different occasions and ways you can redeem your lump sum investment in mutual funds. 

Acquired or nearing your financial goal 

When you are nearer to your crucial financial goal than expected, you must focus on preserving your corpus. When nearing your financial goal, your potential to take risks lowers. Staying invested in equity mutual funds once you have reached your financial goal is counterproductive at times. In case you have achieved your goal earlier, you can exit the scheme and shift all the corpus to a bank fixed deposit or liquid fund to preserve your accumulated fund. Switching to a less risky instrument can prevent your amassed fund from market volatility. 

Want a regular flow of income from mutual funds 

In case you are looking for regular cash flow from mutual funds, do not shift this to a dividend option. Opting for SWP (systematic withdrawal plan) is more effective. It is a prudent facility that mutual funds offer. When you select the SWP plan, it permits you to liquidate your investments phase by phase. You can direct your investments in a mutual funds to your bank account. In SWP, your mutual fund value lowers by the units you withdraw. 

Shift in fundamentals

When a mutual fund witnesses fundamental changes, its risk profile even shifts. This may be owing to a change in the mutual fund manager, a change in any basic attribute of a mutual fund, or a change owing to regulatory rules. If such changes happen and you are uncomfortable with their impact on your investment as it doesn’t match your goals, then you may consider exiting the scheme and rebalancing your mutual fund investment portfolio. 

Constant underperformance of the fund

If your mutual fund investment has been underperforming constantly for 3 years than its benchmark indices and peer funds, you must exit the fund and transfer your investible amount to another mutual fund with a proven track record. However, before withdrawing your lump sum investment and investing in another scheme, ensure to conduct a qualitative and quantitative research of the mutual fund scheme where you are investing. 

Ending note

Patience is all you need when you invest in mutual funds. You must ensure to keep in check your financial goals in and avoid withdrawing your mutual fund investments due to sharp dips. Only if your investment constantly underperforms for a long time period, you can consider redeeming the lump sum amount to invest the same in another fund to meet your financial requirements on time.