When Sell Mutual Funds

When your mutual fund scheme has not been performing well for a long time, selling its units might seem like the most reasonable option to you. However, there are both pros and cons to this action. Before you decide to sell your mutual fund units, you should be aware whether the liquidation of units will be beneficial for you or will lead to negative consequences. See the list mentioned below to find out when selling your mutual fund units might turn out to be beneficial:

  • When you have achieved your investment goal: The best time to sell your units is when you have already achieved your investment goals or a few years prior to that. Switching to a low-risk fund 1 or 2 years before achieving your investment goal will ensure that your investment plan does not get hindered due to any sudden volatility in the market.
  • When the fund has been underperforming: An investor generally invests in a mutual fund scheme to generate income. However, if a scheme has not been generating profit for a long time, it might be time for the investor to sell the units. However, before deciding to sell your units, you should always compare the plan with its benchmark, category, and other best-performing schemes in the same category so as to get a better idea regarding the performance of the fund. Using this method, you can find out whether the scheme is underperforming or the entire market/sector is going through a bad phase. In case you find out that your mutual fund scheme has been underperforming for more than a year, it is advisable to check the reason behind it before deciding to sell the units.
  • When the fund manager of the fund is changed: While this is not a clear indication that you should sell the units of your fund, this scenario still calls for caution. Since fund managers play a pivotal role in the performance of a scheme, you should always check the previous experience and performance of the new fund manager in case of a change. This will help you determine whether it is time for you to start planning your exit from the fund.
  • When there is change in strategy of the scheme: In case you notice the fund manager of the scheme is investing in financial products that are not in line with its original goals, it might be time for you to reevaluate your holdings. If you see that the new goals of the fund are not in line with your investment goals, it is best to sell your units of the mutual fund.
  • When RBI repo rate affects debt funds: When the Reserve Bank of India (RBI) slashes the repo rates, there is a reduction in bond yields while the prices increase to offer better returns in debt funds. In case of a hike in the interest rates, the returns offered by debt funds generally reduce. Under such a scenario, you should take a call and get out of your debt scheme. However, before you decide to sell your debt fund units, you should track general trend of the repo rate review by RBI instead of considering just one instance.
  • When you need to rebalance your portfolio: If you have a set asset allocation model to which you would like to adhere, you may need to rebalance your holdings every now and then. This is done to return the portfolio back to its original state in case the allocation gets skewed towards any particular asset. In such a situation, the investor might have to sell or purchase more units of a fund in order to reset his or her portfolio. In case you decide to alter your investment goals, you might have to consider rebalancing your portfolio which might require you to sell any particular mutual fund units.
  • When the scheme becomes too big: Sometimes, if a fund witnesses rapid growth, its performance might get impacted. As the fund gets bigger, it becomes more difficult for a portfolio to move its assets. Generally, this issue can be seen in focused funds or small-cap funds since they either invest in stocks with low volume and liquidity or deal with less shares. When such a case arises, it is better that you sell your mutual fund units.

Please note that the above situations do not mandate that you should sell your mutual funds since the performance of a mutual fund depend on a number of factors. Hence, it is advisable to consult your financial advisor before deciding to sell any mutual fund units.

When your mutual fund scheme has not been performing well for a long time, selling its units might seem like the most reasonable option to you. However, there are both pros and cons to this action. Before you decide to sell your mutual fund units, you should be aware whether the liquidation of units will be beneficial for you or will lead to negative consequences. See the list mentioned below to find out when selling your mutual fund units might turn out to be beneficial:

  • When you have achieved your investment goal: The best time to sell your units is when you have already achieved your investment goals or a few years prior to that. Switching to a low-risk fund 1 or 2 years before achieving your investment goal will ensure that your investment plan does not get hindered due to any sudden volatility in the market.
  • When the fund has been underperforming: An investor generally invests in a mutual fund scheme to generate income. However, if a scheme has not been generating profit for a long time, it might be time for the investor to sell the units. However, before deciding to sell your units, you should always compare the plan with its benchmark, category, and other best-performing schemes in the same category so as to get a better idea regarding the performance of the fund. Using this method, you can find out whether the scheme is underperforming or the entire market/sector is going through a bad phase. In case you find out that your mutual fund scheme has been underperforming for more than a year, it is advisable to check the reason behind it before deciding to sell the units.
  • When the fund manager of the fund is changed: While this is not a clear indication that you should sell the units of your fund, this scenario still calls for caution. Since fund managers play a pivotal role in the performance of a scheme, you should always check the previous experience and performance of the new fund manager in case of a change. This will help you determine whether it is time for you to start planning your exit from the fund.
  • When there is change in strategy of the scheme: In case you notice the fund manager of the scheme is investing in financial products that are not in line with its original goals, it might be time for you to reevaluate your holdings. If you see that the new goals of the fund are not in line with your investment goals, it is best to sell your units of the mutual fund.
  • When RBI repo rate affects debt funds: When the Reserve Bank of India (RBI) slashes the repo rates, there is a reduction in bond yields while the prices increase to offer better returns in debt funds. In case of a hike in the interest rates, the returns offered by debt funds generally reduce. Under such a scenario, you should take a call and get out of your debt scheme. However, before you decide to sell your debt fund units, you should track general trend of the repo rate review by RBI instead of considering just one instance.
  • When you need to rebalance your portfolio: If you have a set asset allocation model to which you would like to adhere, you may need to rebalance your holdings every now and then. This is done to return the portfolio back to its original state in case the allocation gets skewed towards any particular asset. In such a situation, the investor might have to sell or purchase more units of a fund in order to reset his or her portfolio. In case you decide to alter your investment goals, you might have to consider rebalancing your portfolio which might require you to sell any particular mutual fund units.
  • When the scheme becomes too big: Sometimes, if a fund witnesses rapid growth, its performance might get impacted. As the fund gets bigger, it becomes more difficult for a portfolio to move its assets. Generally, this issue can be seen in focused funds or small-cap funds since they either invest in stocks with low volume and liquidity or deal with less shares. When such a case arises, it is better that you sell your mutual fund units.

Please note that the above situations do not mandate that you should sell your mutual funds since the performance of a mutual fund depend on a number of factors. Hence, it is advisable to consult your financial advisor before deciding to sell any mutual fund units.

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