When to Sell Mutual Funds?

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Should I sell my mutual funds now?

Mutual funds are among the greatest financial options available today, appealing to a wide range of customers. When opposed to shares of companies and many other assets, investors see mutual funds as a secure method to invest. Even if you enjoy taking risks, you may diversify your investments by engaging in some kind of a mutual fund which provides reasonably secure returns.

It is normal to expect certain returns when investing your money in any product. This is completely dependent on your personal preferences. If the investments in mutual funds are producing lower-than-expected returns, you may be tempted to sell your fund's units. You may always invest in several types of financial items. On the other side, if the return on investment is great, you may be motivated to check into alternative mutual funds. However, there are benefits and drawbacks to redeeming mutual fund assets. There are few instances where liquidating funds may be advantageous to you. Let's look at the variables you should think about before selling your investment.

Summary in Brief:

  • Understanding the top reasons to sell mutual funds
  • Caution on selling mutual funds
  • FAQs

 Top Reasons to Sell Mutual Funds

Retail investors examine a number of considerations when investing in mutual funds, including when to purchase, what and how to buy, how much to buy, etc. An exit strategy is a subject that is less frequently mentioned. A mutual fund investor should ideally sell their holdings after their financial objectives have been reached. In addition, for long-term investing, he or she should begin withdrawing money from equity-linked mutual funds and moving the money to safer investment choices when the objective is still two to three years away. Let's examine the primary factors that drive you to selling your funds.

When the Plan has been Unsatisfactory

A mutual fund plan is typically purchased by an investor to produce income. But if a plan hasn't been profitable for a while, the investor may want to consider selling the units. To gain a better picture of the fund's performance, compare the scheme with its benchmark, its category, and other top-performing plans within the same category before opting to sell your units. By employing this technique, you may determine if the scheme is performing poorly or the market/sector as a whole is facing a hard patch.

Changes to the Mutual Fund Scheme Basic Objectives

If the mutual fund scheme's underlying assumptions have significantly changed after you purchased it, you may want to consider selling the mutual fund. You could consider selling your investment in the aforementioned instrument if the factors or investing goals for which you acquired the mutual fund no longer hold true. For instance, you could have invested in a small-cap fund because you only wanted to expose your money to small-cap firms. However, if the fund management starts buying large size stocks, you can run into trouble and need to start seeking to sell so that you can stick with your preferred investing approach.

Changing to Other Financial Modules 

It is true that not everyone prefers to invest all of their funds just in mutual funds. As your current portfolio might not be sufficiently diversified, you can feel the urge to invest in additional securities. Another factor can be your desire for consistent and predictable results. This may be done by utilizing a Systematic Withdrawal Plan (SIP), a plan that allows you to start redeeming your money while still receiving returns on the portion that has not yet been redeemed. You might consider making investments in fixed deposits and tax-free bonds, both of which provide consistent returns.

When your Fund's Manager has been Switched 

Even though this isn't a blatant sign that you ought to sell your fund's units, you should exercise caution in this situation. Since fund managers are crucial to a scheme's success, whenever a change is made, you should always look into the background and track record of the prospective fund manager. You can use this to decide if it's time to start thinking about leaving the fund.

Modification of Asset Allocation

Market fluctuations might occasionally cause your portfolio's asset allocation to alter. Other times, your asset allocation has to alter due to a shift in the personal situation, including a change in your age profile. You could think about rebalancing your portfolio in such circumstances. Rebalancing your assets will assist you in balancing your investment returns and may even compel you to "trade up" and "buy cheap."


However, it is doubtful that the goal of the combined scheme would be different from the one you first invested in. Demerger or Merger AMCs are marketed for many reasons. Stay invested if the combined plan's performance remains positive; if it is negative, switch to a new, comparable scheme offered by a different AMC.

When you have Reached your Investment Objective

A few years before you reach your investment objectives is the ideal moment to sell your units. If you switch to a low-risk plan one or two years before reaching your investing objective, your investment strategy won't be hampered by any unexpected market turbulence.

When Debt funds are Impacted 

Whenever the Indian central bank (RBI) lowers repo rates since higher prices and lower bond yields result in better returns for debt funds. Debt funds often give lower returns in the event of an increase in interest rates. In this case, you should make a decision to leave your debt repayment plan. However, rather than focusing on a single instance when deciding whether to sell the debt fund unit, you should follow the overall trend of the RBI's assessment of the repo rate.

When the Scheme's Strategy is Altered

It could be appropriate for you to review your assets if you see the scheme's fund management is making purchases of financial items that are at odds with its initial objectives. It is prudent to sell your mutual fund units if you discover that the new aims of the fund conflict with your investing objectives.

Tax Credit

If your fund has incurred considerable capital loss and you require a tax cut to balance realized capital gains from the other holdings, you may choose to sell your mutual fund units so that the capital loss may be applied to your capital gains.

Important Note: 

Some investors withdraw MF units or even cease SIP when the market declines or demonstrates symptoms of weakness. As in the past, such dips and corrections might only be short-lived. Staying invested rather than attempting to re-enter when the market turns around is beneficial for long-term investors. By the use of SIP calculator, determine how much money you will need to set aside as an investor to cover the asset prices cost of your long-term objectives, and then designate funds in that direction. Any market decline might be a chance to build more units. 

You may always take advantage of any brief downturn in the equities markets as an entry point, but only when you have extra funds. Avoid dipping into other financial objectives in such a situation. In a market that is growing, many investors have a tendency to lose control. They frequently become more daring and take unwarranted risks. When they see their earnings, some investors lose sight of their investing goals. Many financial gurus think that whenever the market enters a challenging period, investors should take advantage of the chance to review their behavior and portfolio.

The market upheaval might be a fantastic chance for investors to discover a lot about themselves, according to a number of mutual fund experts. Investors claim it also teaches them about the market as a whole. In fact, if you can remember how the market behaves at various stages, then you will grow into a better investor. In short, don't change your investment strategy each time you are advised to be cautious. It simply implies that you should evaluate your strategies and execute them.

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