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Can I enter and exit a mutual fund anytime?

By Finserv MARKETS - Oct 15,2019
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If you are weighing your investment options and wondering if mutual funds are a good choice, this one’s for you. Before you pick a fund, you would also need to acquaint yourself with the basics of mutual funds investment.

Mutual funds are investments pooled in from several individuals like you, and further invested into other assets on your behalf. These assets, also called securities, could include stocks and bonds. Professional fund managers make decisions on your behalf and ensure your wealth is invested in the best places.

Your financial goals and your risk profile are two key factors that you need to take into account ahead of your mutual funds investment. Your goals could be a short-term fund that allows you to plan a wedding or a longer term investment for retirement. Your risk profile takes into account if you are in a position to expose your money to high risk or not. This depends on many factors – you could be approaching retirement or you are by nature a conservative investor. There is a mutual fund for all types of needs.

Can you enter and exit a mutual fund anytime? Consider these factors

  • Open-ended of closed-ended

Each mutual fund scheme is launched through a new fund offer or NFO, the duration of which can last till 30 days as per SEBI directives. You can buy units of an open-ended mutual fund scheme immediately after the launch of a new fund and anytime later. However, with a closed-ended scheme, you can purchase units only during the NFO period. Open-ended mutual funds allow investors to redeem the units anytime they want to.

  • Criteria for investing

When you decide to invest in the best mutual funds, consider much wealth you have at your disposal and for how long you can keep it locked in. Mutual fund investment is rising in popularity across the country. It is easy to invest thanks to online platforms.

Investing in the best mutual funds, available on Finserv MARKETS, ensures you can do so online without multiple trips to branches. Also, the interface is efficient and seamless. Choosing your direct fund, providing investment amount, completing KYC compliance, and making a payment are four easy steps to invest. You could also choose a regular mutual fund, where you need a broker who handles your fund and advises you on investment options. The regular fund has a higher expense ratio because some amount gets paid to the broker as commission. In a direct fund, you handle everything on your own.

  • When to invest

Investing in mutual funds on the basis of prevailing market conditions is not a good idea. You can invest based on your own income, age, and financial goals. Mutual funds investment is a long-term option, ideally. Short-term market volatility or trends should not play a role in your investment decision. This changes if you plan to invest a portion of your money in a sectoral fund, wherein your investments go into one sector predominantly. A knowledge of the cyclical nature of the sector and its peaks is very important, for you to invest here. Such sectoral funds need excellent timing and professional advice, though.

  • No entry load

As per SEBI regulations, entry load for mutual funds has been banned. The entry load stood at 2.25 per cent, till SEBI banned it in 2009. According to a recent report by Morningstar1, India is one of the four countries (Australia, the Netherlands and the UK being the others) where initial charges or front loads are banned. This makes it not just easier to enter a mutual fund but also relieves you of the entry load.

Can I enter and exit a mutual fund anytime?

  • But, what about exit

Can you exit a fund anytime you want to? Or is it like Hotel California (yes, that eminently hummable number) where you can never leave? The good news is that you can exit anytime you want if you have opted for an open-ended mutual funds investment plan. Closed-end schemes come with a fixed term, either three or five years, for instance. After the scheme is over, you can redeem your money. The tiny exit option available is that these funds are listed on the stock exchange, and you can buy or sell there. However, the catch is that you can do so at the market price, which is the discounted value of the net value asset (NAV) of the unit.

  • Exit load

You can exit most open ended mutual funds if you pay an exit load. This is the fee you need to pay when you exit upon redeeming once the term is over, or when you redeem ahead of the completion of term. This fee can vary, depending on the scheme and firm, but commonly it is pegged at 1% if redemption is within a year of opting-in.

Liquid funds are short-term open-ended fund options, where the term is shorter than a year. You can enter and exit these funds anytime you wish. There is no exit load and the only charges are the total expense ratio.

You cannot withdraw your money in ELSS or equity linked savings schemes with lock-in of three years.

Ideally, you should take into account factors such as performance of the fund over a long period, achievement of financial goal or a severe unexpected financial crisis on the personal front that mandates redemption.

Before you invest in the best mutual funds, it helps to gain an understanding of all these factors, apart from assessing your financial health, aspirations and goals. Then, choose mutual funds investment options available on Finserv MARKETS to ensure portfolio insights, free account set-up and customised advice based on your profile.

Finserv Markets, from the house of Bajaj Finserv, is an exclusive online supermarket for all your personal and financial needs. We understand that every individual is different and thus when you plan to achieve your life goals or shop for the gadget of your dreams, we believe in helping you Make it Happen in a few simple clicks. Simple and fast loan application processes, seamless, hassle-free claim-settlements, no cost EMIs, 4 hours product delivery and numerous other benefits. Loans, Insurance, Investment and an exclusive EMI store, all under one roof – anytime, anywhere!

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