5 Tips to Understand the Right Time to Sell Your Mutual Funds

5 Tips to Understand the Right Time to Sell Your Mutual Funds

A lot of people are keen on investing in mutual funds. But the problem is that there are plenty of mutual fund schemes on offer and for someone who is new to investing, understanding the functionalities of these funds becomes a task in itself. You can always seek professional help or refer to websites that have information about mutual funds to get around this problem, but the main issue here is once you purchase your mutual funds, when to sell them. How long to hold onto them?

Now if you are a seasoned investor or someone who is regular with mutual funds or stocks, you might find making this decision even more difficult. Because they understand the intricacies of these funds and hence score profits by selling their investments at the correct time. However, if you are completely new, there might be certain driving factors that may lead you to sell your mutual funds. For example, if the fund is giving good returns you might want to book profits; if the fund is underperforming you might want to bail out your finances from that scheme; or if the fund is neither outperforming nor outperforming why to remain invested?

The point is, never rush towards a conclusion and always be patient while considering withdrawing your mutual fund units.

Here are five things all mutual fund investors should bear in mind while selling their mutual funds.

  1. If the fund that you investing in giving good returns, this means that the fund manager is doing a good job and hence, instead of booking profits, it is advisable to remain invested for a little longer. Selling your mutual fund at the time will give you good returns, but imagine the loss if you withdraw the funds when they are performing. In such a scenario, it is better to remain invested.
  2. If the fund is underperforming, it is true that you need to get your money out of it. But before you do that, do try and find out the timeframe and the degree of underperformance. If the scheme is underperforming due to some global crisis like the current COVID-19 pandemic, understand that not just your mutual fund, but the entire world’s financial industry is facing a crisis and hence selling your funds during such times isn’t a legitimate idea.
  3. Instead of selling your funds, sometimes switching to a better performing fund seems like a good idea. But remember that just because a mutual fund is giving better results than the one you invested in for a shorter time period, doesn’t mean that it will continue to give similar results in the future as well. So only if your fund is underperforming for more than two years, then you may consider the idea of switching to another fund.
  4. The correct time to withdraw your mutual funds is only when you actually need them. Mutual funds need time to grow and hence, it is idle to remain invested in them for a longer time period. Another advantage of keeping a long term investment horizon is that you need not worry about market volatility and your investments might even beat inflation.
  5. These are some of the tips every mutual fund investor should keep in mind while selling their funds. Remember that you are investing in funds to fulfill your financial goals. And unless your investment objective is met, it is advisable to remain invested in these funds.

If you are someone who is going to need to withdraw their mutual funds in the near future, it is better to diversify your mutual fund portfolio with a mix and match of equity and debt funds. So during emergencies when you need urgent money, you can liquidate your debt funds rather than selling every mutual fund from your folio.

Nicholas Jansen