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The strategy to exit from equity

Dhirendra Kumar talks about the importance of an SWP to exit from equity funds while nearing a goal.

What should be the exit strategy from an equity fund once my goal is near?
- Virendra

It is a very tricky area. Exit becomes very simple if you are investing for an objective, such as the down payment of a house or your retirement. Devising an exit route for such goals is easy.

I always suggest investing in equity through an SIP instead of investing a lump sum. The entire idea of investing in equity in a staggered manner is to eliminate the possibility of market high. You don't catch the high. For instance, if you had invested in January 2008 or in February 2020 through a lump sum, the kind of decline that you would have seen thereafter could be quite devastating. By averaging it, although it may not eliminate your losses, it can substantially reduce the big blow that can stop you from participating in the market ever again.

Likewise, it is equally important to disinvest through an SWP from equity before you need the money. Don't wait for the last minute. The market could be at its low when you would need the money. Taking money through an SWP well in advance will help you reduce the possibility of needing the money at the most unfortunate time when the market could be very unfavourable.

There is no mathematics as to when you should start exiting. It depends on the amount of money. lf you have been investing for 30 years and need the money for buying a house or for your daughter's marriage, depending on the scale, start exiting three years before you need the money. One should start exiting at least one or two years before one needs the money, irrespective of the amount through a monthly withdrawal plan.

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