Is it Good to Withdraw Profit from Mutual Funds?

Women invest to secure their financial future, grow their wealth, and achieve long-term goals. But when it comes to mutual funds, a common question arises—when is the right time to withdraw money from mutual funds?

Investing requires patience, and while seeing your investments grow is exciting, withdrawing at the wrong time can impact your returns. In this blog, we’ll explore whether you should withdraw your profits and the key factors to consider before making a decision.

What are mutual funds?

A Mutual Fund pools money from various investors and puts these funds into different assets such as equity, debt, gold, etc., depending on the specific scheme chosen by the investor.

How do they make you money?

An example – 

Diksha invests Rs. 50,000 in Lxme’s Long Term Plan at an assumed rate of return at 14% p.a.*. After 5 years, the value of her portfolio is Rs. 96,271*. Her portfolio is earning returns so, she decides to redeem her MF units and earn a capital gain/return of Rs. 46,271*.

*Mutual fund investments are subject to market risks, read all scheme-related documents carefully.

Check out Lxme’s time and goal-based mutual fund portfolios which are diversified, well-researched, and curated by experts.

Should you withdraw your profits from mutual funds? 

The simple answer is ‘No’—you should not withdraw money from mutual funds until your financial goals are met. Mutual funds come in various types, such as equity, debt, and gold, and your investment choice should align with your time horizon.

For example, if you have a long-term goal, investing in equity or gold mutual funds is ideal since staying invested for an extended period allows your money to compound and grow. On the other hand, for short-term goals, debt and hybrid mutual funds are a more suitable option as they provide stability and lower risk.

Investing in equity and gold mutual funds requires patience and discipline. The longer you stay invested, the more your returns can increase due to the power of compounding. Following mutual fund withdrawal rules is also essential to avoid penalties or unnecessary tax implications.

The right time to withdraw money from mutual funds is when you have achieved your investment goal. If you invested with a specific objective in mind—such as buying a house, funding education, or planning retirement—once the fund has met your target, you can withdraw money from mutual funds and use it as planned.

Note: One should not invest in equity or gold mutual funds for the short term as they are volatile in the short term and you might not get desired returns.

Do not get excited by small profits and withdraw your money from mutual funds! Allow your returns to grow by staying invested for longer. 

Mutual Fund withdrawal rules and partial withdrawal rules

• Most mutual fund investments can be withdrawn at any time. They are liquid assets and there are no specific rules for when you can redeem your mutual funds units.

• Equity Linked Savings Scheme (ELSS) has some restrictions on withdrawal. It is a type of tax-saving mutual fund and it has a 3 year lock-in before which it cannot be redeemed.

Things to consider before withdrawing your money from mutual funds

Holding period and tax implications –

Redeeming mutual funds involves taxation. Depending on your holding period, investors are charged Long-Term capital gains (LTCG) tax or Short-Term capital gains tax (STCG). Investors should consider the tax implications while selling their mutual fund units before making a decision.

Exit Load –

Exit load is charged when investors redeem their units before a specified date. Different funds have different exit loads.

Type of fund –

There are different investment options available for different time horizons such as equity MFs for investors with a longer time horizon while debt MFs for investors who have a shorter time horizon. Before redeeming their units, an investor should carefully determine what is the right time to withdraw their funds and not be influenced by others’ decisions.

Benefits of staying invested in MFs

Compounds Returns –

Staying invested in mutual funds allows your returns to compound over time. This increases your overall return due to the magic of compounding.  

Creates Wealth –

Investing for wealth creation involves investing for the long-term and allowing your returns to benefit from compound growth.

When should you withdraw your investment? 

Achievement of investment goal

The ideal time to withdraw your investment is when you have reached your investment goal. At this point, you can sell your units and enjoy your returns.

Change in goal

Women’s financial goals may change with time. If your goal has changed, your investment should be re-arranged to meet your new goals. This may involve redeeming your investments in mutual funds.

Change in Asset Allocation

Factors like age play a crucial role in shaping our investment strategy and asset allocation. As we grow older, our risk tolerance changes, and our portfolio should be adjusted accordingly. In such cases, we may need to fully or partially withdraw our investments in mutual funds to align with the new asset allocation.

Following the mutual fund withdrawal rules is essential to ensure a smooth transition while avoiding unnecessary taxes or exit loads. Whether shifting from equity to debt funds for stability or reallocating funds to match changing financial needs, strategic withdrawals can help maintain a balanced investment portfolio.

Kickstart your investment journey with Lxme’s expertly curated and diversified mutual fund portfolios! If you have a question about how to withdraw money from mutual funds through the Lxme app, then it is online money withdrawal through the app itself or you can withdraw directly from the mutual fund house.

We have learned how to withdraw mutual funds and decide whether or not to withdraw profit from your mutual fund investment. So, it is recommended that you remain invested for a long time to allow your returns to compound over time.

FAQ’s