When Is It The ‘Right Time’ To Sell Your Holding In A Mutual Fund Scheme

The Idea of Selling Mutual Funds Is More Mystifying Than Buying It

Most of the investors, at one point in their investment lifecycle, grapple with the idea of selling their funds. The investment landscape is replete with advice on when is the most opportune time to sell your mutual funds but to sell your holding in a mutual fund scheme requires a certain degree of knowledge and an understanding of the market along with the expertise of understanding the nuances of your portfolio.

Also, its imperative to keep in mind the exit loads and the reinvestment risk that comes along with it.

Caveat: Hold Your Impulsive Instincts When Selling Mutual Funds from Your Portfolio; Trust Your Fund Manager

It’s quite prevalent to see that investors selling their funds on the premise that it didn’t do as well as it has been doing over a period. Even more surprising is the fact that the margin of performance varies slightly compare to last few years.

The issue here is that investors sometimes don’t compare apples with apples but rather go on the face value of the top performing peers, completely turning a blind eye to the other factors that might have played a role in the variance of its performance. Investors investing in equity funds or hybrid should get into it with the mindset of being in it for a long run over a sustained period.

Funds which have a long history of good performance has a lot to do with its fund managers analytical skill in understanding the market and that cannot change overnight. The investors should ride the ups and downs of the funds’ performance and judge it over a sustained period.

Right Time to Sell Mutual Funds is Just a Mirage: A Booby Trap Waiting to Exploit the Uninitiated

The right time to sell mutual funds should commensurate with the financial goals you have set for yourself and your family and should not be subservient to the direction of the equity markets. It’s a well-documented fact that during the financial crisis between 2009 to 2014 there was a large exodus of equity funds in tune of Rs. 42000 crores.

The same investors who bailed out came roaring back when the market came back up. This ad-hoc investment decision might look to be a good option at the time but it doesn’t reap the desired benefits in the long run. There should always be a prudent approach to investing in funds.

Let’s Skim Through and See When Is The Best Time To Sell A Mutual Fund Investment

• When your financial goals are met: Everyone has an investment objective be it funding a house loan or a child’s education or for retirement. It’s prudent to think about selling the funds when your regular investments have reached its fruition and your investment has matured into a substantial amount which is either at par or have exceeded the expectations.
• There is a change of Investment mandate from you fund house: Investment mandates are directives or guidelines which the investor know beforehand for fund managers to manage the capital. The three most popular investment mandates are:
  • A long-term growth investment mandate
  • Income investment mandate
  • Speculation Investment mandate

The mutual fund can change the mandate if they think the current mandate doesn’t fulfill their interest anymore and it’s up to the investor to weigh up the situation and gauge if the revised mandate commensurate with their long-term goal. If not, then it’s a good time to bail out.

• The fund manager is the engine of your diversified portfolio: The fund manager skills of analyzing the market and accordingly selling or buying the NAV’s of the various funds goes a long way in achieving your financial goals. There has been a trend in mutual funds investment where in the funds are chosen based on the fund manager managing it above all the other things. By going with this trend, you are not only trusting his abilities but also putting your hard-earned money in his court to produce the best results for your portfolio. So, if he quits the fund house then you tend to do the same.
• It’s all about the performance which makes you stick with the mutual fund: As equity market is a volatile domain, it’s always advisable to measure the performance over a sustained period of 3-5 years and not judge by its immediate returns. But sometimes the mutual funds are real duds and that is when is wise to sell your funds.
• The investor wants to rebalance the portfolio: Asset allocation and risk appetite are the key variables in ensuring your financial independence. It’s wise to move to less riskier assets when your financial goal is nigh and hence a modification in your mutual funds portfolio.