Mr. Shah has been a disciplined investor for the past 15 years, methodically building his wealth through Mutual Funds, PMS, and carefully selected stocks, Gold, Real Estate. His portfolio tells a story of patience, prudence, and purpose, a true blueprint of long-term wealth creation. But today, he finds himself standing at a crossroads. An unexpected financial urgency has struck, forcing him to make one of the toughest calls an investor ever faces: which investments should he let go of?
To make matters worse, the market has suddenly turned turbulent. A sharp crash has wiped out months of gains within days. News anchors are shouting “bloodbath on Dalal Street,” WhatsApp groups are flooded with panic messages, and social media is filled with stories of investors rushing to redeem their funds. Mr. Shah’s friends, many of whom once preached the benefits of “long-term investing,” are now selling in haste, fearing a deeper fall. The calm investor within him is at war with the fearful human he’s becoming.
As the saying goes, Investing is science, but exiting your investment is purely a behavioural art. And in this moment of chaos, Mr. Shah realizes that while spreadsheets and charts guide the mind, it’s emotions that truly test the soul of an investor.
In situations like Mr. Shah’s, many investors struggle not because of a lack of knowledge, but because behavioural biases and emotional reactions often take over. The urgency to meet financial needs can lead to hasty decisions, causing investors to redeem assets at the wrong time or miss out on potential market rebounds. Understanding these psychological triggers is key to making rational decisions, even under pressure.
Common triggers for Redemption:-
- Market Panic – When markets fall, we panic and redeem to cut-off further loss; we end up realizing a loss instead of a potential rebound in the
- Short-Term Noise – Reacting to news headlines or current political/economic events inciting panic selling (which in many cases have proven to be far more short-term). It is quite rare that an investor times the market; don’t miss opportunities to grow.
- Herd Mentality – Exhibit behavioural of others who may be redeeming to much lesser amounts for no reason relate to your own goals.
- Chasing Higher Returns – Switching from steady investments to recent winners, driven by recency bias, can hurt long-term wealth creation. Sticking to a disciplined approach helps capture consistent compounding
- Temporary Liquidity Needs – Redeeming long-term investments for short-term needs can disrupt growth. Maintaining an emergency fund or using liquid funds is a smarter alternative.
Ask yourself: What Was My Investment Horizon?
Smart investment decisions during market correction are a deliberate choice. When you began, it must have been with a goal in mind: retirement, education fund, or just building wealth in the long-term. These goals must dictate your investment habits in the present day.
Market dips can be challenging. However, if your investment horizon has some years, these are just minor setbacks that don’t require any prompt action. In fact, selling in these conditions usually end up in regret. It is historically proven that the market corrects and rebounds. That’s when pulling out prematurely can cause a significant dent in your long-term financial plans.
In such volatile conditions, question whether your goal has changed or if it is just the mood of the market. If your timeline is undisturbed, it’s best to let your funds stay. Avoid taking impulsive reactionary decisions and let your long-term goals and investment horizon dictate your actions.
Understanding the Right time to Exit
Goal Fulfilment – Exit when the original financial goal (education, home, retirement corpus) is achieved.
Valuations are Excessively High – If markets are overheated and significantly overvalued compared to historical averages, partial profit booking makes sense.
Portfolio Realignment – Exiting some investments to bring the portfolio back in balance with your risk tolerance.
The Wrong time to Exit.
- During Market Panic – Selling in fear during a crash locks in losses instead of waiting for recovery.
- Based on Rumour’s or Short-Term News – Exiting due to sensational headlines or market rumour’s often leads to regret.
- Copying Others – Selling because others are exiting, without evaluating your own goals, can derail your financial journey.
- Imagine if Mr. Shah had exited his equity investments during the Covid-19 crash in March 2020, when markets fell nearly 40%. He would have booked heavy losses. Now suppose instead he had stayed invested and even added more during that fall by March 2021, markets had not only recovered but reached new highs, giving investors substantial gains. This shows that panic exits during temporary crashes can be destructive, while patience and discipline often reward handsomely.
Framework to Decide an Exit
1. Realization of Goal
- If the investment has grown to meet your financial goal (child’s education, purchasing a house, retirement fund), then it is the right opportunity to
2. Portfolio Rebalancing to match your Asset Allocation
- Over the years, some of the investments grew Selling, and acting to bring your portfolio back in line with your risk profile, is important.
3. Life Changes or Change in Goals
- Marriage, buying a house or cash for retirement and unexpected medical needs can result in a change to the allocated investment.
- Make sure you redeem strategically and not impulsively!
4. Consistently Underperforming vs. Benchmark and Peers
- If the mutual fund or stock(s)or any other Investment is consistently under -performing its benchmark and category for 2–3 years despite market performance being strong, you may want to consider a
5. Better Investment Opportunity
- It can be reasonable to sell if your new preferred investment sustains the original goal, is in a better position tax-wise, performance-wise or philosophy-wise.
6. Change in Risk Profile.
- If this investment is consistently stressing you out or preventing you from sleeping, then it is possible that is no longer in line with your tolerance for
7. Liquidity Requirement
- Unavoidable expenses like medical bills or children’s fees may justify redeeming investments. Planned liquidity should rely on low-risk instruments like liquid or short- term debt funds, avoiding disruption to long-term equity growth.
8. Tax or Regulatory Changes
- Shifts in tax policies or regulations can make investments less efficient. Staying informed and using tax-efficient instruments ensures strategic alignment and optimal returns.
Importance of Advisors View
- Objectivity – Advisors bring a rational perspective when emotions cloud investor judgment.
- Goal Alignment – They ensure decisions are tied to long-term goals, not short-term noise.
- Product Expertise – Advisors analyse risks, taxation, and alternatives better than most DIY investors.
- Market Understanding – They help identify when to hold, rebalance, or exit.
What if Mr. Shah didn’t take advisor’s view?
- He might have exited during market volatility and locked in
- He could have missed better investment opportunities or made tax- inefficient redemptions.
Conclusion
After consulting his investment advisor, Mr. Shah chose to redeem only from investments aligned with his urgent liquidity needs, while safeguarding his long-term wealth. With his advisor’s guidance, he also rebalanced his portfolio to maintain proper asset allocation and risk balance.
This strategic approach helped him meet immediate financial requirements without compromising his future goals. The disciplined decisions, backed by expert advice from a trusted investment advisor in Mumbai, not only reduced stress but also ensured his investments continued to compound effectively, a true example of the power of professional financial guidance.
