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Abhibyakti Singh

Abhibyakti Singh

Executive Assistant, LXME

Is it Good to Withdraw Profit from Mutual Funds?

Women invest to achieve their financial and investment goals. They aim to invest their hard-saved money and earn returns. But, is there a right time for mutual fund withdrawal? In this blog, we’ll discuss if you should withdraw profit from mutual funds and when you should do so.

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. 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.

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’ until your goals are not fulfilled. Mutual funds have different types such as equity, debt, and gold. And based on your time horizon you should invest in different types of mutual funds. For example, if you have a long-term goal then you can invest in equity or gold mutual funds and stay invested for a long time in order to get better returns. And if you have a short-term goal then you can invest in debt mutual funds.

Investing in equity and gold mutual funds requires patience. Having a long-term view will allow your money to compound, which will increase your returns.

The right time for a woman to withdraw her money is when she has achieved her investment goal. So, if a woman is investing in a fund with a specific goal in mind and it has reached her objective, she can withdraw her funds and use them for the purpose she has been investing.

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  • Most mutual fund investments can be withdrawn at any time.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 affect and change our asset allocation. In this case, we can fully or partially withdraw our investments in MFs to match the new asset allocation.

Kickstart your investment journey with LXME’s expertly curated and diversified mutual fund portfolios!

In conclusion, deciding whether or not to withdraw profit from your mutual fund investment depends on your investment goal. However, it is recommended that you remain invested for a long time to allow your returns to compound over time.

FAQ’s

How to redeem only profit from mutual funds?

You can redeem only your profit by partially withdrawing only the profit amount. That means your original amount of investment will stay intact and it will still grow.

What are the benefits of investing in mutual funds?

Investing in mutual funds has several benefits including diversification, professional management, liquidity and the opportunity to begin investing with a small sum of money.

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