How long should I stay invested in mutual fund Schemes? This is a very common question among investors.
Obviously even if I will invest my money I will be keen to know that when can I redeem my money?
Table of Contents
HOW much time?
Mutual fund is a vehicle of investment where money can be kept for year’s altogether.
But it doesn’t mean that you will not withdraw at all.
So, then how long should one stay invested in mutual fund, that’s a question?
The duration of stay in a particular fund should depend on the factors like:
- When do you require money or when is your life goal approaching?
In other words if your retirement is 30 years away then you can stay invested for 30 long years and if your car purchase is 1 year away, you should invest for 1 year itself.
This question will help you understand for how long you wish to invest or for how much time you should stay invested in mutual fund.
2.The performance of that particular fund.
Of course, if the performance of the fund or investment you own is low as per your expectation. Additionally stats of the fund deteriorate then you should exit the fund
3.Matching of fund with your risk appetite and with goal duration.
There are various categories of mutual funds. One should invest carefully in funds as per the time horizon, risk appetite and other parameters.
4.Risk Ratio of Fund
Other factors one should consider are stats of funds like its various ratios, comparison with its peers and risk versus return, category of fund in which you wish to invest.
5.Taxation
Moreover taxation of that particular investment should also be considered. If you require to money now but if exiting the scheme after 2-3 months will save you tax or exit load , then preferably it should be redeemed at that time only.
For how long you should stay invested in mutual fund scheme should also depend on when you require money for your future goal.
Well you might say that you need money after 3/4 years, and you surely want to re look after 3/4 years. But in real sense we need to understand here:
Why do you want to invest your money?
You will say of course, to meet some future requirements. But what can be the future requirement?
It can be your retirement, purchase of any asset, your children higher education, their wedding, your future vacation costs, purchase of car etc.
Once you ascertain your goals and how much money will be required for your future needs, you can stay invested for that long in mutual funds.
The point here is to note:
- Ideally you should invest money as per financial planning way. But why so… because you can reach your destination only and only when you know where to reach, how to reach and what it takes to reach.
It is just like a story that Alice in wonderland. Where do you want to go? But, if Alice doesn’t know where to go then how will Alice reach the destination.
- Then you should know how to reach, means how much money you should invest for a particular life goal and where (means which all funds) to invest your money so that you can reach your life goal safely with minimum risk and maximum profit.
- There should be a regular review of the portfolio so that you get what had been planned for you i.e. good returns and exit from non performing funds (to maximize returns from your existing investment).
There are different kind of mutual fund categories as per duration of investment
| S.No | Investment Time | Fund Type | Annual Return * |
| 1 | Up to 3 months | Liquid Mutual Fund | 6%-7% |
| 2 | 3 to 6 months | Ultra Short term / low duration fund | 7%-8% |
| 3 | 6 to 12 months | Short Term Funds | 7%-9% |
| 4 | 1 to 3 year | Medium Term Debt Funds | 8% -9% |
| 5 | More than 3 years | Long Term Debt Funds | Up to 9%-10% |
| 6 | 3 to 6 years | Equity Hybrid Mutual Fund | Up to 9%-11% |
| 7 | More than 5 years | Equity Mutual Funds | 12% or more |
Note: * Returns are only for illustrative purpose. These return range or any particular return may change with time and other factors.
Whenever you have question in mind that when should I withdraw or how long should I invest my money in mutual fund,
Ask yourself when (after how many years I require money) and follow the above table to invest your money.
The best and ideal way
The best and the ideal way is to consult a Financial Advisor so that he/she can look at all factors and solve your all queries and get your money invested in all investment categories.
She is the person who can help you to understand how much amount you need to invest for a particular goal and where to invest with gauged risk so that you can attain maximum from your investments.
Conclusion:
You should invest your money strictly aligned to your life goals such as your child’s higher education, your own retirement*,wedding of kids, purchase of house, purchase of car, vacation abroad or domestic, leaving a legacy for family or any other life goal.
You should have portfolio review at least once in six months, so that you are able to know, if there is any requirement to exit a particular investment.
Gift yourself a Financial Plan, invest as per that, review it every year and enjoy the real growth of money.
