Right time to withdraw your investments?

Pakhi – Mom, I want a Gucci bag on my birthday! It costs around 2 Lakh. Can you get me one?

Anupama – No, we don’t have money for that.

Pakhi – But why? I saw your LXME portfolio yesterday, you’ve already accumulated that much? Please Mom, as my Birthday gift, please.

Anupama – I’ve started that fund for some specific goal. We won’t withdraw that for your bag.

Pakhi – What? What do you mean? That is the extra wealth we have created. Can’t we just withdraw it whenever we want? 

Anupama – No, we can’t. It’s for your higher education and we will lose the benefits of compounding if we withdraw it before the decided time. 

Pakhi – Then what will be the right time to withdraw? 

Anupama – That depends. For this portfolio you were talking about, as I am investing it for your higher education, we can withdraw it once you complete your graduation.

Pakhi – Okay, got it. So, if I invest for the bag and get the desired amount accumulated, then I can withdraw it, right?

Anupama – Right

Pakhi – Okay. Are there any other scenarios in which we may have to withdraw the fund?

Anupama – Yes, you want to know?

Pakhi – Yes, please!

When should you withdraw your investments?

Is there really a right time to withdraw your investments? Of course, no! There could be multiple reasons why one may take the decision to withdraw their investments. But to make this decision, there are several factors one should consider when deciding whether to sell your investments. Investing has the potential to grow your wealth, but it is crucial to determine the right time to withdraw and avoid making impulsive decisions based on the actions of others. 

The ideal situation to consider withdrawing your investments is when you have  accomplished your financial goals. 

People may withdraw funds if they have met their financial goals and have no further objective to be invested. It can be considered a wise decision if the investments withdrawn were goal specific and have reached their objective. So accordingly, one can withdraw and use the funds for the purpose they have been investing.

What to do in case of emergencies?

Unexpected emergencies often catch people off-guard, leading them to spend more than they anticipated. As a result, one may get tempted to redeem their investments to cover the costs. However, it is essential to resist the urge in such situations. Instead, one should build up their emergency fund in advance to avoid dipping into their investments. By doing so, one can safeguard their long-term financial goals and prevent unexpected expenses from derailing their investments. 

          “Expect the unexpected.”

–Bear Bryant

As seen, properly planned withdrawals can prove to be a boon but unplanned and early withdrawals can also lead to negative consequences that may include penalties, lost potential earnings, missed investment opportunities, and interrupt one’s financial planning process.

In short, early withdrawal can have a significant negative impact and therefore it is important to carefully consider these before making the decision to withdraw early. 

Let’s look at an example of how you may miss on those returns by withdrawing early – 

Ankita and Tanaya are best friends. They both started their investment journey when they were 21 years old putting in ₹1000 every month in LXME’s Long Term Portfolio at the rate of 14% p.a. till her retirement. Ankita was someone who used to budget carefully while Tanaya was a “Retail Therapy Person”. Both decided to create wealth for an international trip when they retire at 60. Sadly, Tanaya withdrew her funds for another impulsive buy at the age of 42. Whereas, Ankita continued to invest till the age of 60. Let’s see how this affected her corpus – 

*These are targeted returns and Mutual Fund investments are subject to market risk. Read all scheme-related documents carefully. 

As you can clearly see a huge difference in early withdrawal has been created between Ankita and Tanaya’s corpus. Ankita was able to create ₹1,79,30,299 (₹1,94,38,584 – ₹15,08,285) more than Tanaya. 

“Patience can produce uncommon profits”

–Philip L Carret

It is essential to have a plan in place to make informed decisions. 

To put it simply, determining the right time to withdraw your investments requires careful consideration of various factors such as your investment goals, risk tolerance, and personal financial situations. It is important to maintain a long-term perspective and not let short term obstacles affect your decision. 

With a well-thought-out investment plan you can take your decision to redeem your investments at the right time after fulfilling your goals and with this, you can ensure to achieve your financial objectives and secure your financial future.

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