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Last Updated : Sep 03, 2014 11:32 AM IST | Source: Moneycontrol.com

When should you sell your mutual fund scheme?

Mutual funds provide good returns in the long run. However, there could be several reasons where you need to sell your mutual fund schemes.


Your mutual fund scheme might have made good returns in the past. However, there could be some signs of bad performance and you may need to get out of such mutual fund schemes. There are various reasons / scenarios where you need to sell your mutual fund schemes.

1) Under Performance compared to benchmark: If your mutual fund is not providing good returns, there could be several reasons. However, if your mutual funds are under performing compared to benchmark, then you should check the scheme details and sell such mutual funds. E.g. if a large cap mutual fund “X” scheme has given 10% annualized returns in last 5 years compared to SENSEX, which has given 13% annualized return, then your X scheme is under-performing. You should check the reasons before exiting.

2) Change in Fund Manager: Fund manager is the backbone of the mutual fund scheme performance. In case there is any change in existing funds manager who has been managing funds well, you should check the past history of the new fund manager. In case fund manager has inadequate experience, you should review your mutual fund and exit appropriately.

3) RBI Repo Rate impacts Debt funds: When RBI cuts down in repo rates, bond yields will drop and prices would go up and this would improve returns in debt funds. When you see that interest rates are going in an upward direction, your debt fund returns fall. Hence, under this situation, you should take a call and get out of debt funds. However, you should review the RBI direction towards repo rate and not just one instance.

4) Redeem based on your goals: Though your mutual funds are performing well, based on your financial goals, you may need to switch between equity to debt. E.g. During retirement where you need to reduce your exposure to equity funds as it carries risk. Another example is about meeting a planned financial goal 2-3 years ahead of time. In such case you cannot invest in equity funds till last minute of the goal. You may sell equity funds and then invest in debt funds or debt related instruments.

5) Does not meet your goal: When you have purchased a mutual fund which does not meet your goal or objective, you should exit immediately instead of regretting it and keeping it as is. E.g. mid-cap funds can be brought only by high risk investors. In case you are low to moderate risk investor, and purchased mid-cap funds, you should exit immediately.
Concluding remarks: When you invest in mutual funds, you should keep these reasons in mind so that you can exit from mutual funds appropriately and invest in better funds. This way you can earn good returns in your entire mutual fund portfolio.

The author of this article is founder of Myinvestmentideas.com. He can be reached at suresh@myinvestmentideas.com for any clarifications.


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First Published on Sep 2, 2014 04:36 pm
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