When is the right time to redeem a mutual fund (MF)? Since an individual can’t time the market, would partially switching to another fund be the right idea?
Redemption of MFs (whether full or partial and by taking a payout or switching to a liquid fund) should be done in specific situations that involve either the fund’s performance or the investor’s monetary requirement. From the fund’s performance perspective, redemption can be done if the fund begins to underperform (compared with the market or its category) consistently or if the fund’s mandate changes fundamentally. From the investor’s perspective, redemption can be done in cases where the investment objective has been met or if the portfolio needs to be rebalanced.
Redeeming for reasons other than these would imply that the investor is trying to time the market using a subjective assessment (either their own or those of market experts). In such a situation, the investor will also face the issue of what to do with the redeemed money and when to reinvest it, leading to a subjective opinion-based call. Such a pattern of investing more often than not results in poor portfolio performance.
I am a government employee, and will retire in another 10 years. We have not started planning or investing for our retirement yet and need to get started. Since my husband is also an earning member of the family, a substantial portion of my income can be invested on a monthly basis towards our retirement. Please advise how we can invest about Rs 40,000 a month. I would like to start a systematic investment plan (SIP) for the future. How big a corpus can I hope to achieve in this time-frame?
It is always a good idea to build a nest-egg for your retirement even if you are starting a little late. You will be able to augment your pension income with an extra annuity payment from this corpus. Also, given that you plan to do a sizeable monthly investment for this purpose, the fact that you are starting late can be offset to an extent. Your corpus could be between Rs 75 lakh to Rs 1 crore by the time you retire.
Regarding your portfolio, it would be good to have it anchored in a couple of good large-cap funds and also have an equal amount of equity-oriented hybrid funds. You can add a slight edge to the portfolio (given that you are going to be investing for more than five years at least) through a multi-cap fund. Franklin India Bluechip and ICICI Prudential Focused Bluechip are good large-cap funds; Birla Sun Life ’95 and HDFC Prudence are good hybrid funds; and Reliance Regular Savings Equity Fund can be the multi-cap fund in your portfolio.
Srikanth Meenakshi is founder and director, FundsIndia.com
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