When to exit? "No one can time the market consistently over the long term. You should exit your investments only if you need the money or if your fund has been underperforming. If your fund is underperforming, you should assess whether the entire category has been struggling or it is just your fund.
Underperformance For A Long Period
Chronic underperformance for a long period calls for mutual fund exit. If your fund has underperformed its benchmark index or peers for a considerable period, you can consider redeeming and investing in a better performing fund. A fund can underperform because of several reasons.
Drivers of Growth in 2024
The total number of mutual fund folios has expanded to 20.45 crore, reflecting growing investor interest and trust in the mutual fund ecosystem. Equity Fund Inflows Surge: August 2024 saw a 3% increase in equity fund inflows, amounting to ₹38,239 crore.
Lack of Control. Because mutual funds do all the picking and investing work, they may be inappropriate for investors who want to have complete control over their portfolios and be able to rebalance their holdings on a regular basis.
Mutual funds come with many advantages, such as advanced portfolio management, dividend reinvestment, risk reduction, convenience, and fair pricing. Disadvantages include high fees, tax inefficiency, poor trade execution, and the potential for management abuses.
By selling off mutual funds, you lose their potential for significant growth over time, especially if you have been reinvesting dividends to automatically buy more shares. In addition, you're only allowed to contribute so much to an IRA each year, so you won't be able to make up for your withdrawals later.
The recommended investment horizon for long-duration mutual funds depends on individual financial goals, but typically, investors should consider staying invested for 5-10 years or more to maximise potential returns and mitigate short-term market volatility.
2024 was a banner year for mutual funds in India. With a sharp rise in AUM, strong equity market performance, and growing SIP inflows, the mutual fund industry showed potential. Looking to 2025, experts expect continued growth, with large-cap funds and thematic sectoral funds gaining popularity.
A common question among a lot of investors during the choppy market is should they invest through SIP or go with a lump sum investment in mutual funds. We believe both lump sum and SIP are ideal for mutual fund investments during such crashes as the NAV has fallen and you get to buy mutual fund units at a lower price.
Stay The Course With Long-Term Funds
With your mutual funds devoted to long-term growth, experts advise: stay the course.
One widely accepted approach is the 50/30/20 rule, which breaks down your income like this: 50% for essential expenses (rent, groceries, EMIs, etc.) 30% for discretionary spending (entertainment, vacations, etc.) 20% for savings and investments like mutual funds.
Can You Live Off of Mutual Funds? Since mutual funds are considered long-term investments and discourage taking profits through trading, living off them probably won't work until you're in retirement and have a large amount of money in them to withdraw over time.
Here are some situations when it might be appropriate to consider exiting a mutual fund: Achievement of Financial Goals: If you've achieved your investment objectives or reached a milestone, such as funding a specific goal like buying a house or funding education, it may be a good time to exit the fund.
“It's also a mistake to sit on your cash and wait for the upcoming correction before you invest in stocks. In trying to time the market to sidestep the bears people often miss out on the chance to run with the bulls.”
Money managers who have spent generations building businesses based on mutual funds contend they will survive and even thrive because investors like and understand the product. It also continues to have advantages in specific areas such as small company stocks and retirement savings.
Growth in AUM
The mutual fund industry AUM crossed Rs 68 lakh crore in 2024 (in November 2024). In December 2023, the AUM was Rs 50.78 lakh crore, which means the AUM has grown by 34% in this period. By the end of December 2024, the AUM is projected to cross Rs 69 lakh crore easily.
Mutual funds are relatively safe but not risk-free investments. Common risks faced by mutual funds include market fluctuations, stock/sector concentration, inflation, liquidity, and interest rates, in addition to credit risk.
Mutual Funds are a good option for investment. The investment horizon/timeline is very important when you consider equity mutual funds, they need to be invested for the long period (7+ years). You have only recently started in June 2024, so keeping patience with your investment is important.
As per this thumb rule, the first 8 years is a period where money grows steadily, the next 4 years is where it accelerates and the next 3 years is where the snowball effect takes place.
The moment one starts earning and saving, one can start investing in Mutual Funds. In fact, even kids can open their investment accounts with Mutual Funds out of the money they receive once in a while in form of gifts during their birthdays or festivals. Similarly, there is no upper age for investing in Mutual Funds.
The 30-day rule refers to a regulation that applies to mutual fund purchases and sales. Under this rule, mutual fund investors who sell shares of a mutual fund and then purchase shares of the same or a substantially similar mutual fund within 30 days are not allowed to claim a loss on their tax return.
NAV of Mutual Funds Come Down
When NAV comes down following a crash, so does your investment's worth. Let's understand it with an example. Suppose a fund's NAV before a crash is 50, and you have 1000 units of it. So, the value of your investment is Rs 50,000 (50 X 1000).
If you are a short-term investor, certificates of deposit (CDs) issued by banks and Treasury securities are a good bet. If you invest for a longer period, fixed or indexed annuities or even indexed universal life insurance products can provide better returns than Treasury bonds.
Just as with stocks and bonds, mutual funds generally have market risk, meaning that prices can fluctuate up and down. They also have principal risk, which means you can lose the original amount invested. Remember that investments cannot guarantee growth or sustainment of principal value; they may lose value over time.