Mutual fund guide: Can I withdraw funds anytime? Here are important factors to consider

Mutual funds (MFs) have become a popular choice for people who want to engage in the stock market without physically purchasing or managing equities. There are many important factors to consider while you buy a mutual fund either one-time or through SIP (systematic investment plan). Equally, it is necessary to look at multiple factors when you want to exit.

To calculate the net or final returns, exit load and taxation are crucial factors to consider. Therefore, understanding how and when to redeem mutual funds is quite critical.

Here is a list of things that an investor should consider while exiting a mutual fund —

Mutual funds guide: Exit load or fees
Exit load or fees differ from one mutual fund to another. It is charged to encourage investors not to exit the MF in a certain period.

Mutual funds dictionary: Lock-in period
The lock-in period is the time limit during which money cannot be withdrawn from a mutual fund plan. For example, equity-linked savings plans (ELSS) have a three-year lock-in term from the day the units were purchased.

Understanding mutual funds: Tax
Gains or profits earned from mutual funds are taxed at the time of redemption, according to the Income Tax Act. If you exit from equity-oriented mutual funds within a year after purchase, your gains will be taxed at a 15 per cent rate. This is known as short-term capital gains tax. However, if you keep an equity mutual fund for more than a year, profits beyond Rs 1 lakh would be taxed at 10 per cent. Meanwhile, returns on debt mutual funds will be taxed according to the individual's income tax bracket.

Mutual funds guide: Other terms and conditions
AMC may also require a minimum redemption amount. Therefore, one should thoroughly consider the terms and conditions before investing in any plan.

Mutual funds withdrawl: Is it fine if I withdraw mutual funds at any time?

According to industry experts, withdrawing a mutual fund too early is not advisable. Furthermore, the golden rule for equities funds is to stay invested for four to five years to create higher returns. In the case of debt money, two to three years is still appropriate.

Investing for a long time is always advisable for mutual funds. Market fluctuations are normal and one should not panic at all and pressurise oneself to sell. Meanwhile, a mutual fund calculator may help you track your investment's performance over time and remind you of your long-term goals.