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Should I Withdraw 5% from My Mutual Funds Now?

Ramalingam

Ramalingam Kalirajan  |10194 Answers  |Ask -

Mutual Funds, Financial Planning Expert - Answered on Mar 21, 2025

Ramalingam Kalirajan has over 23 years of experience in mutual funds and financial planning.
He has an MBA in finance from the University of Madras and is a certified financial planner.
He is the director and chief financial planner at Holistic Investment, a Chennai-based firm that offers financial planning and wealth management advice.... more
Asked by Anonymous - Feb 18, 2025Hindi
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I'd like to withdraw around 5% of my portfolio in mutual funds for an expense. As a long-term investor who started investing in 2015 and continues with SIPs, is it advisable to withdraw this amount during the current downturn?"

Ans: Withdrawing 5% from your mutual fund portfolio requires careful assessment.

Timing the market can be difficult, even for experienced investors.

You have been investing since 2015, which shows commitment.

SIPs ensure rupee-cost averaging, benefiting from market volatility.

The current downturn may not be the best time to withdraw.

Impact of Market Downturn on Withdrawal
Equity funds fluctuate based on market trends.

During a downturn, selling means locking in lower values.

If the market recovers, you might miss potential gains.

A partial withdrawal affects long-term compounding.

Assess if the withdrawal can be delayed.

Alternative Ways to Meet Expenses
Use surplus cash, if available, to avoid redeeming investments.

Consider liquid funds for short-term needs.

If you have dividends from funds, use them instead of withdrawing capital.

Emergency funds or savings accounts can be better options.

Selecting the Right Fund for Redemption
Avoid selling funds that are currently underperforming.

Look at funds that have met targets or are overweight in your portfolio.

If you hold sectoral or thematic funds, check their performance outlook.

Prioritize redeeming funds with minimal tax impact.

Tax Implications of Selling Mutual Funds
Long-term equity gains above Rs. 1.25 lakh attract 12.5% tax.

Short-term equity gains are taxed at 20%.

Debt mutual funds are taxed as per your income slab.

Consider splitting the withdrawal to reduce tax liability.

Maintaining Your Long-Term Goals
Withdrawing 5% is manageable but can delay wealth accumulation.

Ensure SIPs continue without disruption.

Reinvest when possible to recover lost growth.

Avoid frequent withdrawals to maintain portfolio stability.

Finally
Selling during a downturn is not ideal unless unavoidable.

Explore alternatives before redeeming mutual funds.

Choose the least disruptive fund to sell if necessary.

Keep your long-term financial goals in focus.

Best Regards,

K. Ramalingam, MBA, CFP,

Chief Financial Planner,

www.holisticinvestment.in

https://www.youtube.com/@HolisticInvestment
DISCLAIMER: The content of this post by the expert is the personal view of the rediffGURU. Users are advised to pursue the information provided by the rediffGURU only as a source of information to be as a point of reference and to rely on their own judgement when making a decision.
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I am 50 yrs old an IT consultant doing own business, i invested in mf via sip 1.nippon smallcap 10k/month 2. Ppfas 7500/month 3.quant active fund 8500/month 4. Pgim lumpsum 60k Please advise for long term benefit like my son btech education fees i am started mf sip past 1.5 years, my son going to join college this year can i withdraw all my money from mf. Due to bearish movement of market last few month my overall percentage lower very much 26% to 19% . Pls advice
Ans: Hi Rajan,

Good to know you planned investment for your son's education. There a few things to keep in mind when planning investment which are market linked.
The time horizon is very important to reap the benefit from the market linked investments. In your case your son is going to join college this year and than means you will need this money for his fees. Along with this the fund selection based on the risk profile.
There have been 2 things that seem to be of concern at this time - 1. Markets are bearish currently and 2. Not enough time to stay invested. Also the funds you have selected are of very high risk category and hence you may see higher impact in the fund value compare to the market.
If you still see a return of 19% as mentioned, I would recommend you to withdraw and for whatever time you have the money before utilizing it, do consider a low risk option of investment like Bank FDs.
This will provide safety and liquidity of your money when required.
All the best to your son for his future.

Thanks & Regards
Janak Patel
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