Not making enough money out of your mutual fund investment can be fearful and frustrating as it poses a big problem in your efforts to create wealth for yourself and family, especially if you can’t go for big risky investments. Debt mutual funds are usually the go to option for these conservative investors. The debt funds mainly invest in a mix of debt or fixed income securities such as Treasury Bills, Government Securities, Corporate Bonds, Money Market instruments and other such securities of different time horizons. In most cases, debt securities have a fixed maturity date and pay a fixed rate of interest. So, you have a basic idea about the return you are likely to get. Generally, it is advised to give any mutual fund at least three years to ensure your money grows enough to take care of your current needs as well as builds a fund for your future.
If you opt to withdraw money from your fund earlier, chances are that your returns will be below expectations and even negative in some cases.
But, what about those investors whose debt funds are performing poorly? This puts them in a tricky position to decide whether they should stay invested or exit the scheme.
Srikanth Meenakshi, co-founder and COO, FundsIndia.com explained that if a debt fund is performing relative to its peers in its category or if it is not measuring up to a reasonable returns expectations of an investor, then the time period of investing should not determine whether to exit or not.
However, it is true that the passage of 3 years gives long term taxation advantages that can add nicely to the after-tax returns,” he told Zee Business Online.
When should you hold onto your mis-firing debt mutual fund investment?
While you might be tempted to exit the scheme, if the investment is close to completing three years, it would be wise to hold onto your funds. “If the investment is close to completing 3 years or if the underperformance is marginal (and the investor does not need the money until the completion of 3 years), the investor can hold on,” Srikanth said.
However, if you think three years is far away, you can exit to other options. “Else, exiting to safer debt funds or deposits would be a more prudent option,” he said.