hey guys welcome to another episode with me shashank udopa and in this episode you know we're gonna talk about something slightly different and that is known as how to exit a mutual fund or when to exit a mutual fund
now i'll tell you what right a lot of people when they come out and do videos they actually tell you when to invest how to invest and where to invest but no one tells you when to exit how to exit and what do you need to plan
when you exit just like how there's a plan to invest there is also an equal amount of planning required when you exit a fund as well so in this video we're not gonna talk about how to invest we're gonna actually talk about how to exit the mutual fund and when to exit a mutual fund in more uh particular right
right so now we're gonna do a few reasons i'm gonna tell you a few reasons which actually explains when you need to exit a mutual fund and if you see these reasons you should exit at that point okay
awesome so let's look at reason number one if your fund is consistently giving you a poor performance you need to exit that fund now what do i mean by consistently giving a poor performance now if you have a fund that is constantly returns are constantly going downwards it's not going upwards it's constantly going downwards then it's obvious that you need to get out of this fund and find another fund to invest in
now if the fund has gone down in one month time frame like in the last one month it went down by two three percent don't feel scared about it right you need to give it enough time to perform the second thing what you need to look at is how is it compared to the other funds if all the other funds in the same sector have given very good returns but this one your fund is not given that good returns then it might be time to consider moving it to another fund
the third thing or the worst thing that could actually happen is if your fund does not outperform the benchmark index right if it does not outperform the index fund then you've got lower than the index then the fund is really not doing really well and you need to exit at that point
there are so many reasons why a fund could not be performing well right the fund might have invested in some kind of a sector or some kind of companies in a particular sector and that sector might just have a bad time right the sector might be going on a downward spiral and your fund is actually invested in that and if that happens it creates an issue for your fund and indirectly creates an issue for you now that is for an equity fund but if it is a debt fund they might have invested in low credit rated securities and might have failed to earn higher returns as planned or as expected
so when things like that happen you need to check how is it with respect to the index fund and is it giving good returns with respect to all the other funds in the market if it is consistently giving you bad returns time to exit that was number one
now the second reason why you would want to invest or when to invest in the mutual fund is with respect to investment objective now what is investment objective the main investment objective is why did i invest in this mutual fund right
when i invest in a mutual fund we ensure that my investment objective is in line with the fund right maybe they're moving in from a diversified equity fund to just a pharma concentrated fund now it might give great returns but the risk also might be quite high and that is not in line with my investment objective maybe i'm investing this for my retirement and i don't want so much volatility in life
so when something like this happens it is best to step away from that fund if it moves away from your investment objective if you are saying okay you know what no shashank this the risk in this is okay and maybe they've just merged into another fund now and the two funds have the same risk profile and it is in line with my investment objective
then you'll be like okay fine that is fine that is okay i can still stay invested but if it goes against your investment objective and it becomes little more risky then you should be like okay you know what i think i should go and find another fund that is in my risk profile or that is in my investment objective so when the fund changes its objective according to you you need to change the fund as well
so that is when you exit the other fund now the third thing very important is something known as portfolio rebalancing now what is portfolio rebalancing at the beginning let's say you want to have an equal allocation of equity and debt so you invest 50 in an equity fund and 50 in a debt fund now what happens is you know with the recent bull run that's going on right now obviously the nav of your equity part would go up more so equity will take up more than 50 and debt will slightly take up less obviously
because the bull run is going on now when that happens you might be like you know what no this is not good for me i want an equal allocation in equity and debt so i need to rebalance it okay if some something's gone up 70 and the other one is only at 30 maybe i need to slowly rebalance it rebalancing is nothing but you know removing something and adjusting it somewhere else it's not putting it back into your bank account it is rebalancing the allocation right because maybe equity went 70 and dead 30 maybe i don't want that so much so i make equity 60 and debt 40. i'm just rebalancing right
so that is when you usually exit a particular fund when it goes out of proportion with in line with your investment objective now another reason that might be there for you to exit a fund is the achievement of personal finance goal right now what is achievement or personal finance goal now we all invest for some reason right maybe mental peace maybe for some emergency fund maybe for an investment objective of
okay you know what i want to buy a house so i'm investing for this or maybe it might just be as simple as you know what i just want a nice amount of money when i retire and after my retirement i want good amount of money in my bank account to live a peaceful happy life now that might be it
now what happens is imagine you're investing from day one and you're accumulating your funds and now you're almost close to retirement okay you have reached this point where you're almost close to retirement and now just before retirement you might see that you know what the market is very volatile all my savings that i've done from the last 20 25 years might just go down because the market might go into a crash it is a possibility right and you don't want to be in this volatile market because now you want to enjoy retirement so at this point there is something very beautiful
there's a very new technique that has come out quite recently it's come out it's known as swp or also known as systematic withdrawal plan right withdrawal prime means removing the funds so instead of just selling everything right at one go and putting it into your bank account what you can do is you can do a systematic withdrawal plan whereas you can tell the equity fund right or you can tell the fund okay
put a standing instruction saying that you know what transfer some money from my current equity fund and maybe put it into a liquid fund every month take a particular amount or sell a particular number of units and put it into a liquid fund which is more safe for you so that is something that you can do so as soon as you are coming close to achieving your personal finance goals and you want to remove it you can remove your money that's when you exit a mutual fund but again do it with a plan read up about systematic withdrawal plan
and see why that is more important than just removing your money upfront that is a very important factor now another reason why you might exit a mutual fund is with the change of the fund manager and this is very important right so every mutual fund is run by a fund manager it's success or failure of a mutual fund depends on the fund manager itself now some mutual funds are very successful only because of the fund manager right not because of the fund house but maybe because the manager who's running it is very famous
now what happens if suddenly the fund manager is changed okay what happens if the fund house changes the fund manager and he leaves or what happens if the fund manager tomorrow decides that you know what i'm gonna play a little more risky i'm gonna change my strategy and i'm going to have a more risky profile now when that happens and the performance of the fund might decline then that is the time you inve
you exit the fund right either when the fund manager actually gets changed or if his new approach might not be in alignment with your new approach so that is when you say okay i'm done i need to exit this and maybe invest it back into something else another reason right and this is very important because a lot of you have the same question is when do you exit a mutual fund when it's profit booking time right
now you'll be like okay shashank profit booking is such a topic that nobody knows when is the right time right place and nobody can predict when the right time right place is for a profit booking but what you can do is in an investor's journey right when i'm investing there are lot of opportunities for me to exit right and get amazing gains in the stock market now
obviously if you invest for a very long period of time you will make better returns but then there are some times there are these weird conditions in the market there are economic conditions or market conditions uh from time to time that will keep coming that might trigger you to book the profits and trigger you to be like okay i need to take my money out right so let me let me give you an example now if you look at india right if you look at the inr okay
sometimes what happens is a weak rupee if the rupee is weak it is beneficial for the i.t sector because they deal in exports so if the rupee is weak they get more money from dollars and they make a lot of money but what happens is when the rupee is weak for a long time and dollar keeps increasing right but then suddenly there is a cycle curve where the rupee starts becoming stronger and dollar keeps going down
so when rupees starts becoming stronger that's when you know that the i.t sector is not going to do well so i think that time i should book my profits of whatever i have in the iit sector and reallocate them somewhere else that is when you do profit booking obviously you can't time the market you don't know when it's going to go up and when it's going to go down but when you see a trend like this you might see that it is not favorable to a particular sector remove it put it somewhere else right
don't obviously put take it out and enjoy just reinvest it somewhere else into a different sector so it is more like your profit booking and rebalancing at the same time so that is when you profit book at when and exit a mutual fund at that point
now i've been talking about how to exit right and i've been talking about when to exit but let me tell you when you want to exit how to do it in a very systematic and a planned way so we will look at an exit plan now there are two three ways you can look at an exit plan depending on how you want to exit and what are your goals of exiting now the first thing would be that imagine um you are exiting a mutual fund because you've reached your financial goal
okay i've come towards the end of my financial goal in next two three years i'm going to retire and i want to get my money out right now what you need to do is before you reach your retirement goal maybe two years or maybe three years start making a plan okay i have built a corpus of say 10 lakhs now i want to remove this money so maybe every three months i'm gonna remove a certain amount of money and put it back into some other fund or into some other investment or into a liquid fund i don't know what it is but make a plan don't just say i'm gonna remove all this money and keep it in my bank account
because you need to grow your money even after retirement as well right so i'm not saying use it for your benefit and enjoy but make a plan according to it right now what another thing that you can do if you're selling a mutual fund now the first one was okay i'm reaching my retirement goals or i'm reaching this financial goal
and i'm making a plan to systematically exit it out now another reason why you might be exiting is if you're selling your entire mutual fund to book profits right if you're booking profits you do the second step now if you're booking profit you need to make it very clear that if i'm profit booking where does that profit go that is your planning right now let's assume i made two lakhs in profit and i want to book this profit bookmarkle
i'm selling the thing just to get the gain of 2 lakhs now as soon as you book this profit you need to figure out where can i take this 2 lakhs and reinvest it in the market right do i put it back into my other existing investments i profit book from the ones that did really well and maybe reinvested in the other ones that i might not do well but will do well later that is a possibility or you rebalance your portfolio a little bit so whenever your profit booking you need to make a plan as to that profit that i'm booking
where is it going car how is it going where is it going and how to use it efficiently now the third time okay that was profit booking now the third time you might want to invest as i mentioned before was when you're rebalancing your portfolio you're selling it to rebalance your portfolio now you need to have a rebalancing plan in place now rebalancing plan again is very important so you need to make a plan every time you rebalance make a plan right where will that extra money go and how do i rebalance
it depending on a lot of factors depending on the sector depending on the current market conditions and also depending on what interest rates are going on now there is another system that you can use here a new system that was created again quite recently and this is known as systematic transfer plan okay assist stp or systematic transfer plan now what systematic transfer plan basically says imagine i've invested in an equity fund and
i'm seeing that okay bull run is slowly getting over and i have a feeling india might change the interest rates that might make the bond rates or might make the debt funds very attractive so what i'll say that okay i have say one lakh in my mutual fund and with the same company with the same amc right or asset management company
i'll be like listen in the same asset management company you have another debt fund so do one thing i will issue a systematic transfer plan that every month from my one lakh fund remove 10 000 and start putting it into your debt fund same company so they'll do the transfer for you so you don't have to sell here and then buy again you just be like please transfer from your this fund to the same companies this one right so equity to debt so you can do a transfer of that
so if you're rebalancing you can do a rebalancing from that anytime you think oh maybe it's you know something's gone up by 10 15 percent i want to rebalance again rebalance from a systematic transfer plan this is something that a lot of people do that is something that you can do as well when it comes to exit planning
now as i told you very few people in the market actually talk about when to exit a mutual fund and moreover than when to exit how to exit with a plan we all make a plan to invest in the market but when it comes to exiting everyone's scared everyone doesn't understand when to exit they might be like you know what is the market going to crash should
we exit right now but it's not only those factors there are so many different factors that we mentioned right market conditions might be changing interest rates might be changing the sector might be not attractive anymore even the dollar rate inr dollar rate might affect some sectors as well
so in this episode i hope we learned all the different things of when to exit a mutual fund and then how to plan once you exit a beautiful exit plan was also discussed in this again if you like this and this is something little different that we did uh not many people do this
and if you like this thank you i really appreciate it i'll keep coming and doing more episodes for you guys so this is shishan gurupa signing off.
**Disclaimer
hey guys just a disclaimer any stocks or fund that have been mentioned in this article is only for educational purposes we do not recommend a buy or sell in anything investments in securities market are subject to market risks read all the related documents carefully before investing please read the risk disclosure documents carefully before investing in equity shares derivatives mutual fund and or other instruments traded on the stock exchanges
Comments
Post a Comment