To get the most out of their mutual fund investments, investors must take the proper steps when selling units or leaving them.
When it comes to mutual funds, there are some factors to consider, from where to invest to when to sell which fund. Many investors follow the buy low, sell high approach, which includes waiting for the market to drop to purchase low and sell high, but this is easier said than done.
The best way to sell or quit from mutual fund investments
Financial Goal-Oriented Investments: Buying mutual funds with a defined financial objective in mind and the appropriate asset allocation is always advised.
“One has to pick the correct funds, considering numerous goal factors within each asset class,” says Anurag Garg, CEO, and Founder of Nivesh. If the funds were chosen using this method, the investor should hang on to the assets until the financial goal is met, rather than selling on the spur of the moment due to a momentary shift in market conditions.”
Changes in the External Market: Investors must reorganize their portfolios due to a variety of external market variables. “If interest rates are rising, it is wise to transfer longer-maturity debt funds (such Gilt Funds) to shorter-maturity debt funds, and vice versa,” Garg says.
A Change in a Fund’s Fundamental Attribute: There might be a fundamental alteration in the fund’s characteristics, forcing the sale of the fund’s units. The change in the characteristic might lead to a change in the main cause for the fund’s investment.
“SEBI amended the criteria for investment allocation by multi-cap funds in September 2020,” Garg explains. A minimum of 25% of these funds’ assets has to be allocated to big, mid, and small-cap companies, according to the law. This eliminated the flexibility that such funds previously had. As a result, a new category called Flexi cap funds was created. This is a significant change in the fund’s characteristics, and it may be necessary for an investor to sell their units and transfer their assets to another fund whose characteristics meet their needs.”
Performing poorly in comparison to peers: If a fund underperforms its peers and the underperformance can be linked to the fund manager’s approach, experts recommend that the client switch to a better-performing peer. Before making a final choice on any exit strategy, investors must examine the consequences of exit load and taxation.