If your fund has been underperforming continuously, then you should withdraw your investment.
New Delhi: All of us want to earn money for which we use different methods and resources like investment, saving plans, property, gold etc. Mutual funds are one of the best ways to increase your wealth. Here we tell you a few important things and steps by which you can earn good amount of money. Through mutual funds, small investors can invest in different asset classes and get better returns. Diversification, professional management, and liquidity play a crucial role. Most of the people who invest in mutual funds are not aware of the right time to withdraw the money and how to save on taxes. We are here to help you with these two things.
How is mutual fund performing
It’s not easy to gauge whether your fund is performing well or not. If your fund has been underperforming continuously for 6 months or more than a year, and it’s weaker compared to the benchmark (like the Sensex) or other funds, then you should withdraw your investment.
Rebalancing/ Reshuffling
You should also withdraw money from the fund for rebalancing. Let’s understand this with an example. Suppose you have created a portfolio with 60% equity and 40% debt funds. After a few years, it has grown to Rs 25 lakh. In this, Rs 18 lakh is in 4 equity funds. In this case, your equity allocation will be 72%. Therefore, you should withdraw some funds to bring it back to the 60% range.
Shift to Index Funds
If your large-cap fund is finding it difficult to outperform passive funds, and you want to shift to index funds, then you should redeem your investment.
Upon achieving the target
If you have invested in a mutual fund with a specific target in mind and you have reached that target, you should redeem your investment. For example, if you invested in a mutual fund to accumulate Rs 25 lakh by 2025, but you achieved this target in 2023, you should redeem it prematurely. This is because, due to higher equity exposure, the returns may decrease in the coming months, which would result in a loss for you.
Tax on redeeming mutual fund investments
The tax on mutual funds depends on the type of fund (equity/debt) and the holding period (short/long term). For equity funds, LTCG (Long-Term Capital Gains) up to Rs 1.25 lakh is tax-free. After that, a 10% tax is levied (after one year). For debt funds, a 20% tax is levied according to the income tax slab, with indexation. If the holding period is less than one year, a 15% tax is levied on equity funds and tax is levied according to the slab rate for debt funds.
Also Read: