“Very often I see that people do not have an exit strategy in mind,” she said in an interview to CNBC-TV18, adding that exiting investments should be just as planned as entering them.
According to Agarwal, there are only three reasons to exit a fund: if you’re nearing a financial goal, if the fund is underperforming, or if rebalancing your portfolio is needed due to asset allocation going off-track. These decisions, she stressed, must be rooted in a systematic review, not knee-jerk reactions.
“When checking performance, it’s not enough to say, ‘This fund gave this much and mine gave that much, so I’m exiting.’ You need to evaluate your fund’s performance versus the category average and the benchmark, and track it over a period of time.”
The review process, she said, should be conducted once a year, not more frequently. Rebalancing is also not a quarterly exercise but an annual one.
Agarwal also flagged the need to begin planning your exit at least a year before reaching your financial goal, particularly when investing in equities. “You don’t know what the market will be like then,” she said, pointing to the volatility seen during COVID and other periods of market stress. To avoid last-minute surprises, she recommended starting the exit process early and gradually moving the corpus into safer instruments like debt funds.
Another important piece of advice is to tag specific mutual funds to specific financial goals. Many investors hold a basket of mid-cap, large-cap, and thematic funds without clear allocation. Agarwal believes that tagging funds to goals can simplify decision-making at the time of exit. “This is my goal, I need this money, these are the funds I’ve tagged — and then you exit those particular funds,” she explained.
Finally, match your investment products to the time horizon of your goals. Short-term goals (like buying a car in two years) should be funded using debt instruments, while longer-term goals (like retirement or children’s education) can use equities, but with an early and cautious exit strategy in place.
As investing becomes more accessible and widespread, Agarwal’s message is clear — knowing when to get out is just as critical as knowing when to get in.
Watch accompanying video for entire conversation.
