Investing is not just about buying, but also about selling. Only when you sell do you generate returns from the investment.
Sometimes, if you perceive your investments are not performing as you intended, you may wish to sell them. This is applicable for a mutual fund too. You may want to sell, and put the money in some other investment option.
Here are a few things to keep in mind before selling your mutual fund:
- Falling market: When the stock market slumps for a certain period of time, it is called a bear market. During such times, many investors panic about the fall in the value of their investments and sell to avoid great losses. This follows the ‘buy low, sell high’ principle. Since equity-oriented mutual funds invest in stocks, their net asset values may fall too, while that of a balanced scheme may not. During such times, it is wise to keep the longer-term growth prospects in mind. Also, it is important to look at the assets in the mutual fund portfolio and analyse their worth. Sell the mutual funds only when you think they are not worth holding.
- Consistently low returns: Sometimes, the rate of return may be low temporarily. But that does not mean the long-term rate of return will be lower too. However, if the fund is giving poor rate of returns consistently for a longer period, consider selling it. So, analyse the performance of the fund for over a year. To better understand the prospects of the fund, analyse its portfolio and compare with a benchmark index or fund.
- Changes in the fund:It is the fund manager who decides where to invest your money through the mutual fund. As a result, you also put your trust in the manager’s knowledge and capabilities to help you get good returns. But, if your fund manager has changed, it is likely that the investment strategy may alter. So, monitor the fund’s performance for a year. Also, if the investing strategy changes, it may not be suitable to your financial goals. This is another factor to consider while selling the mutual fund.
- Your needs change: As time passes, our priorities in life vary. Same goes for our capacity to take risks and our need for liquidity. If the mutual fund no longer suits your updated profile, you may want to redeem your mutual fund units and invest the money elsewhere.
- Exit load: Another key reason to hold a mutual fund unit for atleast a year is that most fund houses charge a fee. The earlier you sell your unit, the higher is the exit load. This affects the total amount you receive after liquidating your MF units. As a result, it is important to read the offer documents carefully.
- Taxation: Capital gains are when the final sale value of your investment exceeds the initial value. In such a case, a portion of the profits is paid as tax. This needs to be kept in mind while selling a mutual fund.
- Online: It is very easy to sell a mutual fund. You can either do so online using your online trading account, or get in touch with the fund house. You can also contact your stock broker to help you with the transaction.
Visit our academy section to learn more on basics of mutual funds