Mutual fund investors have the opportunity to invest and go out on any given business day, depending on closing times, if any. The redemption price is also subject to tax liability and income tax. Once a mutual fund investment has met the target for the investment, one has the option to exit. Investors can choose different ways to get out of their investment in mutual funds. This can be in actual redemption to switch out or a systematic withdrawal plan.
Knowing how to get out of a mutual fund is just as important as knowing when to get out and it can make or break your wealth-building process. Withdrawal from the fund should not be done based on market changes unless there are emergencies. One must do it thoughtfully, with a plan of action.
Redemption of the fund
A simple redemption can be done by completing a redemption form stating the amount to be redeemed in the specified mutual fund plan. The form or written request for the above details and the paper and signature number must be submitted to the official point of acceptance of the transaction. The application can also be made online through a mutual fund website or other mutual fund forums provided by joint fund authors or distributors.
Switch out from the fund
Instead of redeeming, one can make money and put it into another scheme of the same fund house and park it in that scheme till further use of the funds. The request for a change can be made in the same way by providing additional information about the switch in the scheme.
Systematic withdrawal plan from the fund
An investor can withdraw his investment in a systematic way to structure regular payouts or monthly drawdowns. This can be done by signing up for a systematic withdrawal plan (SWP), wherein, the desired fixed amount is redeemed from the investment and paid out to the investor on the defined date and a defined frequency. An SWP form needs to be filled out and submitted to activate this plan.
Systematic transfer plan
A systematic transfer plan allows investors to shift their financial resources from one scheme to another instantaneously and without hassles. This transfer occurs periodically, enabling investors to gain market advantage by changing to securities when they offer higher returns. It safeguards the interests of an investor during market fluctuations, to minimize the damages incurred.
A systematic transfer plan Mutual Funds can only shift the financial resources of an investor between various funds operated by a single asset management company; inter-shifting between multiple schemes offered by several companies cannot be done.
Here are a few situations where an investor should consider exiting the scheme.
- Achieved or nearing financial goals? Exit from the scheme and invest in less risky assets
- Want a regular income from your mutual fund investment and seek to preserve your capital? Do a systematic withdrawal plan (SWP)
- A shift in fundamentals? Review and rebalance your mutual fund
- Consistent underperformance of a scheme? switch to a new mutual fund
- Change in asset allocation? Rebalance portfolio
- Demerger and/or Merging of Asset Management Company (AMC)? Review and Rebalance
- There is an emergency? Exit from the scheme or pause your systematic investment plan (SIP)
