There are a few questions that keep haunting an investor in the mutual funds industry.

And a big one is – “Should I withdraw my money from mutual funds as soon as the investment starts giving good returns?”

This is one problem that most intelligent investors also face while making the investment.

Therefore, in this article we will discuss this question in detail and try to figure out the right time to exit the investment.

Before jumping on to the question, let us first understand the genesis of why this thought of selling funds as soon as we get good returns occur.


The Certainty Effect (Prospect Theory)

Though the heading might seem very technical, the concept is quite easy

Kanhneman and Tversky developed a concept termed as Prospect Theory. Certainty effect is a part of that theory which explains an investor’s behavior.

It can be defined as a psychological effect that results from reduction of probability from certainty to probable.

Let us see an example to get hold of this.

Which of the following options do you prefer?

1.A sure gain of Rs. 3000

2. 80% chance to win Rs. 4,500 and 20% chance to win nothing

Most investors will choose the first option.  And there is nothing wrong in that. When conducting a similar experiment, 78 percent participants will choose option A while only 22 percent will choose option B.

But if we carefully look at the options, option B gives us greater probability of winning more than option A. (80% of 4,500 + 20% of 0 = Rs. 3,600, as compared to winning Rs.3,000 in option A).

This is exactly how investors behave in the financial world.

And it also explains the typical risk-aversion phenomenon in the world of finance. Therefore, we can say that investors are very quick to sell investments as soon as they see a profit in them.

Should You Sell Your Investment When it Starts Giving Returns?


The answer to this question is a big “No”.

You should not be in a haste to sell off our investment, but always remember the goal for which the investment was started. You start investing in funds not just to make small profits and then make an exit.

Mutual fund investments should be done for the long term with a specific goal in mind. Once these goals have been achieved, then you can think of selling those funds.

The Factors that Matter

1.Risk Appetite and Fund Category

The answer to this question also depends on your risk appetite and the kind of fund you are investing in.

Consider this example. Suppose you have started an SIP in a small or mid-cap fund.

We all know that these type of funds are the most volatile. Therefore,you commit to invest in these funds for five years and then withdraw your investment.


This reason can be that you are reaching the age of retirement or you have other plans in mind. Now at that point in time, if suppose your risk appetite does not allow you to continue in this scheme, you should exit.

Another reason can be the type of fund you are invested in. Say for example you have made a lump sum investment in an ELSS fund.

2. What Does the Future Hold?

Suppose after a great rally in the market, the investment has provided tremendous returns in the next one year.

At the same time, pundits and analysts alike are skeptic about the future of the market because of various macro factors not favoring the investment.

Now, the certainty effect plays on the minds of investors. And most investors do not take a risk and exit the investment with the healthy returns they have garnered.

When Should You Withdraw Your Money From Mutual Funds?

These are the three major reasons:

1.You Have Achieved Your Goal

1.If the investment goal has been achieved, you can withdraw from the mutual fund.

For example you have invested in a scheme to buy a house in 7 years. If you are able to achieve that goal by liquidating the mutual fund units, then there is a valid reason to go ahead with the redemption.

Also, your priorities and needs may change at any time. If there is a liquidity crunch that you might be facing, then selling your units will be the most feasible option.

2. The Objective of the Fund Has Changed

If a fund has given adequate returns and there has been an alteration in the scheme because of which the fund is not a great value addition to our portfolio, then you might consider exiting.

Reasons concerning change in fund manager, change in category or top holding can be reasons pertaining to change in regulations. We need to be privy to these changes and make our exit call based on the same.

It is also advisable to not switch or redeem these investments at one go but wait to see the performance of the fund for few months or a year before taking a final decision;

3. Underperforming as Compared to Peers


Though the fund you are invested in is providing reasonable profit, you notice that the returns are still less when compared to its benchmark or competing funds, then you can consider exiting from the fund and simultaneously choose a fund that has better fundamentals.

Things to Consider Before Exiting a Mutual Fund

If we have encountered any of the three reasons specified above, then it would be at our best option to initiate redemption from the scheme.

Let us see some of them here:-

1.Exit Load

Most mutual funds have exit load of around1 percent if redeemed within one year of investment. You should take this into consideration before selling your investment. Also, exit load varies from one scheme to another.

2.Tax Implication

There are different tax implications for different categories of mutual funds. Say for example if equity mutual funds are redeemed within one year of investment, they will attract short term capital gains to the tune of 15 percent along with surcharge and education cess.

For debt mutual funds, the time period when a short term capital gain is charged is three years.

3. Volatility Prevalent in the Market

It is always advisable not to sell during market volatility and times when there is too much noise in the markets.

Exiting a fund when markets are going southwards would only mean low returns or capital erosion. Mutual fund investments should always be considered for long periods of time.

It is also recommended that if we need the money on a particular date, then we must start withdrawing at least five to six months before that.

Meaning, withdrawing part by part and not at full go. There are times when exiting might take a toll because the markets are too risky and tumultuous.


In this article I have addressed one of the most frequently asked investment doubt.

And it’s upto you to remember the investment goal  whenever such thoughts keep arising in your mind. Also to reiterate the most important thing, stick to your investment for a long term to reap the maximum benefit.

Happy Investing!

Disclaimer: The views expressed in this post are that of the author and not those of Groww