Do you know when to sell your mutual funds?

 

Sometimes things do not pan out as planned and as a result, you might have to part with your investments. Unlike your fixed deposits, a majority of mutual funds do not have a lock-in period. As a result, you can choose to sell these funds whenever you want; the primary reasons for selling are:

  • To meet an investment goal
  • The asset performs poorly
  • Change in the fund manager.

To meet an investment goal

If you have invested in mutual funds for your children’s college education, as the time nears it is necessary to make changes to your portfolio and move your equity funds into the more stable debt funds. You can do this gradually over 2-3 years; this will reduce the risk of loss and protect your investment. Alternatively, you can sell only a portion of the equity funds and retain the rest for higher returns.

With regards to debt funds, you can withdraw at will and all at once, unlike equity funds which must be moved gradually.

 A poor performing asset

Some funds do not perform as predicted; if your funds consistently dip when compared with the benchmark it is best to let them go. You can decide the fate of these funds by keeping a watch on their rating; if it drops and continues to remain at that spot for a few months then it is not worth holding on to. But don’t let a single month of poor performance cloud your decision.

Fund manager changed

Do not underestimate the role of the fund manager in your investments. Each fund manager has a unique style of investing. You chose a fund manager based on their track record and their investment philosophy. When a replacement manager takes over, the style of functioning usually changes; each individual has a specific philosophy when it comes to investments and strategies. This transformation may not be in tune with your expectations from your funds. It is best to sell your funds at such times. of course, the reverse is also possible where the new fund manager might outperform his predecessor. Hence, you must ideally wait before parting with your funds in a hurry.

Parting words

While it is true that you invest in mutual funds with a long-term financial goal in mind, it is not necessary that you stick to your funds forever and never sell them. It is important that you keep a watch on how your funds are performing and if the need arises let them go; there are always better alternatives coming up all the time.