Top reasons to sell your MF holding

While we as long term investors invest a lot of time on deciding which  mutual fund (MF) scheme to buy and when, it is worth giving it a thought as to when should one exit the MF holding in a particular scheme. Often one of the most difficult decisions when it comes to investing seems to be “When to sell your investments”.

Top reasons why you may consider selling your funds :-

1.    Non performance :When you see that the fund is underperforming and that too consistently, one needs to take a decisive call and that too quickly as the underperformance may simply hurt meeting your financial goals. A small underperformance over a longer term can lead to a major difference in the total gains. 

2.    The fund does not meet your financial objective :It may happen that with a long term investment horizon especially, that your risk profile changes and the fund may no more serve your purpose. The point in case could be bonus received or increment in salary, etc. The fund in such a case needs to relooked at and one needs to be convinced if the fund needs to be part of the portfolio.

3.    Your investment goals have changed or the fund mandate has changed: There are good chances that one’s investment goals may change as one progresses or it may also happen that the fund changes its mandate and the new mandate may not suit your risk profile. Such change in stance of the MF scheme needs to be carefully studied and investors may then decide to exit or stay invested in the scheme depending upon the findings. 

4.    When your target is achieved: Most of the times it is seen with investors that they book out of the scheme which is outperforming heavily. For e.g if the fund outperforms over three-year period and the initial investment horizon finalised is five years, many would simply sell the investments in the third year itself. Ideally if the financial target for which the investments have been made is achieved, one can think of selling the fund. Only because the fund has outperformed markets in one month, three months, six months or one year does not suggest that it is a good strategy to book out of the fund.