Is Redeeming Mutual Funds a Good Idea When the Market is Down? Find Out

Hit by the pandemic, SENSEX saw its lowest onMarch 2020, after the lockdown was announced. This is not the first time the markets have tanked and along with it, the returns on investments for many investors. Much like the previous events such as the global recession or the 9-11, many investors are once again contemplating to redeem their mutual funds.But is that the right choice? Let’s find out. But before we do that, let’sknow a few scenarios.In the past decade it has been seen that there have been a couple of incidences when the mutual market was in disarray. But situations have been quite different in the long run, with the market witnessing a rise.So then, is it a good idea to redeem your mutual funds when the markets are down? Let’s explore a few key scenarios.

You can either choose to invest in mutual funds through Systematic Investment Plans (SIPs) or lump-sum. SIPs are known to offer a better advantage to the investor as they let you take advantage of the Rupee Cost Averaging. It simply means you purchase more units of the funds when the markets are down and lesser units when the markets are up.Thus, the cost of units of the mutual funds you purchased is averaged out according to the market conditions helping you optimise your return potential from the fund. This does not mean you should go ahead and redeem the funds if you have invested lump-sum. You need to examine a few other factors, as mentioned below.

Some sectors often are worst hit than the others. If your chosen industry or sector, especially if you have invested in sectoral or thematic funds, is not doing well consistently, exiting the funds when the sector takes a hit might be the right choice.

Next time when mutual funds market down, assessing your portfolio could be the right choice. If your portfolio is swaying too much on one side, you may be more prone to losses. For instance, while mutual funds investing heavily in small-cap equity offer a higher return potential, they are also more prone to risks than funds with a heavy asset allocation to large-cap equity. Balancing the portfolio and your asset allocation with the help of an expert may be the right choice than just redeeming the funds.

The information contained herein is generic in nature and is meant for educational purposes only. Nothing here is to be construed as an investment or financial or taxation advice nor to be considered as an invitation or solicitation or advertisement for any financial product. Readers are advised to exercise discretion and should seek independent professional advice prior to making any investment decision in relation to any financial product. Aditya Birla Capital Group is not liable for any decision arising out of the use of this information.