If you have invested in mutual funds to get better returns than traditional investments and are now thinking of cashing in, then wait. Before doing this, have you considered some special things which are very important? There are several things you should keep in mind for mutual fund redemptions. Fund redemption should not be a hasty but a deliberate step. Come, let us know some important things.
ask yourself these questions
Have you reached your target?
When you choose the best mutual fund to invest, its aim is to achieve a specific target. Whether you are investing to build an emergency fund, saving to buy a house or saving for your child’s higher education or retirement, find out whether you have reached your goal or not. If you have achieved your target with the fund, you can consider encashing it. On the other hand, if not, you should maintain investing until it is achieved.
Has the fund performed significantly poorly over a long period of time
According to Kotak Securities, you need to carefully understand the real reason behind the underperformance of the fund over a long period of time. If it is due to the strategies adopted by the fund manager, you can go ahead and place a redemption request. If market turmoil due to economic and political turmoil has contributed to the fund’s underperformance, you may see some more time before redemption.
Is there any change in the purpose of the fund
The best mutual fund you have chosen for investment, does it match your objectives? If there is a change in its purpose due to regulatory mandates or decisions taken by the asset management company and it no longer matches your objectives, you can consider redemption.
Have your goals changed
Mutual fund redemptions often involve changes in your goals. For example, when you have chosen a fund to invest in to meet a particular goal, but you change your mind, or the goal is missed, you may consider redemption. Life changes, and so do goals. If you notice a significant change in goals, you can opt for redemption.
What will be the tax and exit load?
This is another important thing to consider before mutual fund redemption. Mutual fund redemption tax is the tax you have to pay when you redeem your investments. Taxation of mutual funds is based on their holding period and type of fund (equity or debt). Long Term Capital Gains (LTCG) on equity funds now attract 12.5% ​​tax on gains above ₹1.25 lakh. Short-term capital gains (STCG), on the other hand, are taxed at a flat rate of 20%.
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