Here is a collection of must-see videos that will help you understand the world of mutual funds. Happy Investing!

Financial discipline is similar to going on a diet. It is never easy. There are plenty of temptations - an urge to over spend, letting emotions control your investments and confusion due to the problem of plenty - look at the plethora of options available in the market, with the returns of one scheme trying to beat the other. Who does one turn to for advice? Dependency on one person or your financial advisor alone is also tricky. Which is why people often turn to mutual funds.

The argument here is that experts are taking care of your investments. Depending on your investment appetite and risk appetite, mutual funds come with a good mix of both equity and debt, which helps you earn an interest of 12-15% or more depending on the type of investment schteme you have picked and how the markets have performed overall. Yet, selecting a mutual fund can be confounding due to the raft of choices available.

Episode 46 I Expert

Planning your exit

How to choose the right time to exit or sell your holdings

We all know the story of Abhimanyu in Mahabharata who knew how to enter the ‘Chakravyuha’ but didn’t know how to strategically exit, which unfortunately led to his death. In a similar way, when investing in the market you could lose your earned returns, especially if you are in it for the long term. A smart investor should always outline an exit strategy when he gets close to his goals. Though mutual fund investments are for the long-term you should know when to exit and sell your holdings.

Having said that the common mistake made is to sell your portfolio holdings as a reaction to the short-term market movement. So you may be wondering, when is the right time to exit?

One definite time to exit is when a fund has consistently underperformed the benchmark over a period of time. It is important to not go only by the fund’s semi-annual performance. The other time is when the fund changes its mandate. For instance, if a fund changes its mandate from a diversified equity fund to a large-cap fund which may or may not be able to generate much alpha compared to its previous positioning. If the mandate does not suit the alignment of your financial goals, it is time to exit the fund.

Sometimes when you begin with certain goals in mind some unfortunate and unforeseen circumstance may alter your financial plans or goals which may require you to gradually shift your risk or reallocate your assets from aggressive to conservative funds. During these circumstances, it is important to plan an exit strategy where you sell some of your investments and deploy some funds in debt.

There are also moments during a bull run where your portfolio has rapidly expanded. Here you’d need to reassess your investments and sell some of the equity portions of your portfolio to rebalance. Rebalancing your portfolio every six months helps you to keep a check or helps you curtail risks.

During bull runs sometimes you would have achieved your financial goals in a pre-defined way well before your timeline. Here it is important for you to shift your savings to safer havens to avoid some sudden market shocks which can erode your savings.

Now that you know when you should be redeeming your portfolio, you’d be wondering how you should invest once you have redeemed your investment. There are two ways you can withdraw your money from the market, one is through a systematic withdrawal plan (SWP) or a systematic transfer plan (STP). Your exit strategy should begin one year before you need the capital or about 9-12 months before the date you need your money. The shift should be from aggressive to conservative during the time of exit so you protect your investments from market downturns.

Having said that it is important you do not hastily move out of a fund just because it has underperformed for a couple of quarters, you should move out only if a fund has consistently underperformed its benchmark over a long period of time. Remember exit strategies may not work where returns are assured in products such as PPF or fixed deposits.