When to Sell Mutual Funds

1. Introduction:

Most of the times investors focus mainly on buying an investment. But, selling at the right time is as important as it is to select a perfect fit investment. In this article we discuss how to know if it is a right time to sell your investment.

2. Misconception About Selling Mutual Fund:

Following are typical reasons when people think they should sell their Mutual Funds:

a. Market is at all time high and your funds have performed much better than expectations. You are looking to book profits by selling them.

b. Markets are not performing, and your funds have given negative returns. You are thinking to move out of equity to reduce further losses.

c. Fund is performing below peers. Many a times for few months, funds may underperform making us think our fund is not good enough.

If any of the above reason is making you think about selling your fund, then such sell decision mostly backfire.

3. Right Time To sell Mutual Fund:

Following are the appropriate circumstances when you should consider selling your mutual fund:

a. You have achieved your goal:

The ideal time to sell your MF holdings is when your financial goals are very near of completion, may be few months before. If you have invested in an equity fund, you should shift your investments to a low risk debt fund 1 to 3 years before reaching your goal to save yourself from volatility of equity markets in the ending years.

b. Scheme under-performance for long term:

If the scheme you have invested in is underperforming consistently for long time (4-6 Qtrs.) relative to its benchmark and peers, then you should try to understand the reason for underperformance, like is it because of change in Fund manager, change in fundamental attributes or any other structural changes and accordingly take a call to switch the fund.

c. Re-balancing due to change in your Risk profile:

If with increasing age, changing salary, expenses and goals there is a possibility that your risk profile may change.

Example: If you are now in middle age, your risk profile may become aggressive from highly aggressive. In such case, if your financial status allows, you may want to sell some of your equity funds to move to Debt.

Our Take: You should stay invested for a longer term, unless there is something really wrong with the fund or you need liquidity