Shhh...! Secrets to Selling/Exiting Your Mutual Fund Investments
Considering the mutual fund investments, there’s a famous adage which goes on as “Almost anybody can enter a good fund at the right time, but only the smart investors can exit at the right time.” But this smartness is again very difficult to apply during market drawdown due to several macro events having negative sentiments.
Therefore, there are proved set of rules that an investor can follow while deciding on when to sell off a mutual fund.
Well, the journey of equity investments can be directly compared with ‘a roller-coaster ride where you only get hurt when you try to jump off in the middle.’ The experts in the field often tell investors that staying invested through the lows and highs of a market cycle can be far more rewarding than trying to time the market. However, it’s not always right to stick to bad performers and ignore the consistent losses. For instance, if you notice significant poor performance of a fund over two or more years, then it may be the time to cut your losses and move on. Therefore, the investor should possess active management qualities to review investment portfolio on a timely basis. But again, high response to over activeness can also harm the investment. There are several investors who deal with three common phenomena, which are:
- Over-excitement of high returns during lofty market situations: This makes the investor greedy to book profits.
- Depletion of investment value and losing its grip in the recent time period: This pushes the investors to exit and save the remaining value.
- Long-run sideways market with no profits and losses: This lower down the patience level of the investor to continue and wait any longer.
According to our experts, none of the reasons listed above are legitimate for selling off any fund. It is happening just because the over-active investors have a bias for continuous actions, and this creates a logic for taking action out of any situation.
Now as we promised earlier, we will make you acquainted with the secrets to selling; so, here are the reasons when it is actually right to sell off your fund.
- When the fund is consistently underperforming
Although the funds’ performance is correlated with the market trend and all funds underperform inline during negative phase, sometimes the fund can show negative performance out of the way. This reason can alert you to compare the performance with their benchmarks. However, you must make peace with the fact that even the top performers tend to have a few bad quarters. Therefore, to check the actual condition, we suggest you to look at the long-term inconsistency of returns to analyze a fund. On consecutive underperformance and no expected improvement, you can take exit call from the respective fund.
- When there is change in fund’s objective
There are times when the fund manager suddenly decides to change the investment style and opt for a different strategy all together which might not be suitable for you in terms of risk aversion or other parameters. During such period, it’s best to sell off your fund and move ahead. Such parameters are the critical attributes due to which you might have started your investment. If the changes made in the fund are not in-line with your objectives, it’s the best time to wave goodbye.
- When the market falls or experiences correction during the period close to the maturity of the investment goal
In case you’ve achieved your investment goals a couple of years before(especially in the case of equity investments) and facing the correction or fall with the expectation to see more fall in future. Then, you can shift to another less volatile option such as a debt fund to ensure that sudden volatility or a period of market correction does not hamper your planning.
Remember, selling off a fund is as important a decision as entering a fund. Thus, it is important to check the calculations of all the charges of exit load and tax liability before taking this call.
We, at MySIPonline, hope you are now well aware of the secrets about when to sell/exit from a mutual fund investment. Share them with your friends and family too. We will be more than happy to assist you in case you wish to seek recommendations or have some queries. You can quickly reach out to us via phone call or email.