Map Mutual Fund Exit Route Market Shocks, Other Activity Can Trigger Prearranged Plan

Whenever you put your money into mutual funds, it makes sense to consider carefully how you will be able to take it out again.

You want to do this even assuming that you have complete confidence in the long-term outlook for both the financial markets and the specific fund in which you are investing.

There isn’t anything too complicated about accomplishing this task. Funds are noted for their easy-in, easy-out liquidity under normal business conditions.

If you have any questions about how these procedures work, a phone call to the fund, or to the financial adviser through whom you invest, should provide you with answers.

Through this same phone call, it should also be easy to determine what you need to do to fill in any gaps that may exist in your exit plan.

In the early, low-tech days of the fund industry, the most common means of redemption was a letter of instruction telling the fund specifically what investment to redeem and where to send a check for the proceeds.

Today, many more options are available - including telephone procedures, both automated and voice, for redeeming immediately by check, bank wire to a previously designated account, or transfer to a money market fund where your money can keep earning a return.

Probably the easiest approach of all is to have a prearranged setup, as offered by just about any fund family or brokerage firm, for switching your money from stock or bond funds into a money market fund.

If you buy funds direct rather than through a broker, “have a money fund account opened at every fund family with which you deal,” advises Doug Fabian, a Huntington Beach, Calif., adviser who publishes several newsletters on fund investing.

Once you have established that basis of operations, Fabian recommends, “have your contingency plan in place by registering in advance for all available exchange services, including phone, fax, mail and automated trading.”

Sound idea though it may be, laying out a detailed exit plan from your fund investments can pose a potential problem. Once a panic button has been installed, it may encourage you to panic.

In other words, a handy setup for telephone switching or otherwise moving your money around may increase the impulse to scramble your long-term investment plan at an inopportune time, when emotions are running high.

So as you set up the machinery for quick redemptions of any fund investment, it also pays to decide in advance under just what circumstances you want to consider using those mechanisms.