One of the toughest things to calculate that can be tougher than rocket science is, “When is the right time to sell mutual funds?”. Investing in mutual funds is one of the simplest ways to accumulate wealth. Investors may think that once they have bought a fund, they can stay put and the wealth will just accumulate on its own. It is one of the biggest mistakes that you can do because not all funds are a lifelong investment. You need to understand the circumstances when you can sell the funds or just leave them however they are.
Let us explain the circumstances when you may plan to sell Mutual funds or stay away because of negative consequences.
Stocks and Mutual funds are different things:
This is the first thing that you need to understand. Mutual funds and stocks are totally different things. So, it does not mean that you need to sell your funds when there is a dissipation of the stock market. It is solely based on the morale of “buy low and sell high”. This is why investors get eager to sell their stocks when the market is down suddenly.
Mutual funds, on the other hand, are not singular entities like stocks. There are various types of mutual funds and they are classified according to the degree of diversification. However, you should know this important factor that you shouldn’t rely on market timing to sell funds. It will be a futile strategy as the portfolio of a mutual fund may represent various kinds of markets.
When is the right time to sell mutual funds?
Consider some factors that may affect your return when you are chasing in your mutual funds. Read below to know more:
Change in a mandate:
You may consider selling your fund if it changes its investment style. Suppose, you have invested in a multi-cap fund which has now a mid-cap fund, then it will be best for you to quit if you don’t want to bear the added risk. Similarly, if you have a debt fund and it has changed its fundamental attributes, then you should consider an exit.
Your funds may consistently underperform in its category. This is the time when you should consider selling the funds. However, you shouldn’t take this decision based on a short term result. There are good funds that have performed for a long time but have a temporary downfall. In those cases, you should wait for a recovery.
Change in ownership:
There are different kinds of fund houses each of which has distinct investment culture. If a fund house is acquired by another one, then the investment policy is most like to be changed. Always stay aware of any significant process to know how your fund is being managed.
Change in fund manager:
Fund managers have an impact on the fund performance no matter whatever a fund house says about their approach. If there is a change in the fund manager, you really want to keep your eyes open.
Requirements in liquidity:
If your purpose of investing in the mutual fund is complete or if you are close then you may consider exiting. You may liquidate your fund or you may consider transferring the total fund to a debt fund from the equity. You may opt for an SWP or an STP plan to exit the fund.
For instance, you own two funds with significant overlap in holdings. You may consider selling one of them because none of them will give you the ultimate level of diversification. You may consider selling funds if you have too many portfolios. Keeping two or three of them to attain diversification is a nice step. However, more than that can increase complexity instead of benefiting you.
Selling a mutual fund is not something that you should do hastily. Give numerous thoughts to the decisions before getting into the action. What you need to remember is that you initially invested in the mutual funds because you were confident. If you are satisfied with the pros and cons of your fund’s performance and still consider selling it then there shouldn’t be any backlog that you should think about.
So, these are the instances that you may consider selling your mutual funds. If you have decided that it is one of those above reasons that you want to exit a fund then it is good as long as it can justify your reasons. However, selling a fund just because of some short-term gain is not necessary. Funds that are being held for a long time have the potential to strengthen your wealth. Selling off those funds without any proper planning and too early will not only make you miss out on those gains but your goals may suffer as well.
Hope this blog help you to understand the right time when you can plan to sell Mutual funds.