There are two important decisions that required to be made in relation to any investment. The first one is when to buy and the second is when to sell. There is generally a lot of information available about when and how to buy but not much is written or said about when to sell. For an equity fund investor, it is absolutely crucial to know when to sell rather than knowing when to buy. There are always some issues that one has to tackle while making a decision to sell.
If you look at your portfolio today, you might find that some of the funds are doing well and some are not doing so well. In fact, it is quite natural to have this situation at any point of time. A situation like this might prompt you to take an impulsive decision. However, before taking any decision to sell, it is important to look beyond performance. There are certain factors like quality of portfolio, consistency and asset profile that needs to be looked at.
There can be certain other situations that might require you to act and get rid of some of the funds in your portfolio. Let us analyze as to how you need to react in some of these situations:
Poor performance
This reason for selling, although valid in certain conditions, is where most investors make a mistake. Before making a decision to sell on the basis of poor performance, it is necessary to put performance in perspective. In other words, you need to consider relative performance and not absolute performance alone. For example, if your fund is down 3%, while other funds are up 3%, it is very tempting to shift to one of the better performing funds. However, if you consider too short a period for this purpose, it can boomerang. Besides, to consider relative performance, it is necessary to compare your fund to its peers. For example, if your fund is a well diversified fund, you need to compare it with other diversified funds, Comparing it with a mid-cap fund will not give you the correct picture. Similarly, if your diversified fund is down 3% and the average return from diversified funds is minus 4%, your fund has actually performed better than the average in a falling market.
Change in fund’s style or objective
It is always important to remember your original reason for buying a fund. If you invested in a diversified fund investing primarily in large cap stocks at that time, but you notice that it is investing in mid-caps now, then you should consider selling the fund. Similarly, if you own some stocks and the fund that you are invested in also have considerable exposure in those, you may consider divesting from the mutual fund or the stocks, depending on situation of your overall portfolio.
Change in your situation
If you are at a different stage of your life, it might become necessary to sell some your investments in MF. For example, as the retirement age approaches, you may want to shift your money to more conservative funds.
Change of Fund Manager
A change of fund manager may make you nervous and force you to consider selling your investments in that particular fund. However, it is important not to react immediately after the change. Instead, keeping a track of any variation in terms of performance and style might help in taking the right decision. If the style of the new fund manager is completely in contrast to the earlier one and the fund house does not seem to be doing anything about it, it makes sense to come out.
You need the money
Sometimes, there will be circumstances in your life when you must sell your investments. It is important to weigh out alternatives to selling your investments because it could make a difference in the long run. You may consider taking a loan, if it is available at lower than your expected return on your investments.
Fund does not fit your risk profile anymore
As we all know that investing in a sector fund can be riskier than investing in a well-diversified fund. If you find that a particular sector fund has become volatile, then it makes sense to get rid of it.
It is important to remember that any decision to sell your fund has to be well thought out one and not based on some immediate urge. Equally important is to remember that as a unit holder you have the cushion of your fund manager weeding out the over priced and laggards out of the portfolio.
The key, therefore, is to focus on the fund selection. If you are invested in a good fund from a fund house with a proven track record, most of your worries are taken care of. This decision itself will save you of a lot of botheration of keeping a track of the market.
If you decide to sell, consider doing it gradually. All of us know that systematic investing is the best way for investing. It is also important to know that selling gradually also ensures certain benefits. Remember, selling some of the funds can save you money. Don’t forget, you invest to make money and not to make losses.
If you look at your portfolio today, you might find that some of the funds are doing well and some are not doing so well. In fact, it is quite natural to have this situation at any point of time. A situation like this might prompt you to take an impulsive decision. However, before taking any decision to sell, it is important to look beyond performance. There are certain factors like quality of portfolio, consistency and asset profile that needs to be looked at.
There can be certain other situations that might require you to act and get rid of some of the funds in your portfolio. Let us analyze as to how you need to react in some of these situations:
Poor performance
This reason for selling, although valid in certain conditions, is where most investors make a mistake. Before making a decision to sell on the basis of poor performance, it is necessary to put performance in perspective. In other words, you need to consider relative performance and not absolute performance alone. For example, if your fund is down 3%, while other funds are up 3%, it is very tempting to shift to one of the better performing funds. However, if you consider too short a period for this purpose, it can boomerang. Besides, to consider relative performance, it is necessary to compare your fund to its peers. For example, if your fund is a well diversified fund, you need to compare it with other diversified funds, Comparing it with a mid-cap fund will not give you the correct picture. Similarly, if your diversified fund is down 3% and the average return from diversified funds is minus 4%, your fund has actually performed better than the average in a falling market.
Change in fund’s style or objective
It is always important to remember your original reason for buying a fund. If you invested in a diversified fund investing primarily in large cap stocks at that time, but you notice that it is investing in mid-caps now, then you should consider selling the fund. Similarly, if you own some stocks and the fund that you are invested in also have considerable exposure in those, you may consider divesting from the mutual fund or the stocks, depending on situation of your overall portfolio.
Change in your situation
If you are at a different stage of your life, it might become necessary to sell some your investments in MF. For example, as the retirement age approaches, you may want to shift your money to more conservative funds.
Change of Fund Manager
A change of fund manager may make you nervous and force you to consider selling your investments in that particular fund. However, it is important not to react immediately after the change. Instead, keeping a track of any variation in terms of performance and style might help in taking the right decision. If the style of the new fund manager is completely in contrast to the earlier one and the fund house does not seem to be doing anything about it, it makes sense to come out.
You need the money
Sometimes, there will be circumstances in your life when you must sell your investments. It is important to weigh out alternatives to selling your investments because it could make a difference in the long run. You may consider taking a loan, if it is available at lower than your expected return on your investments.
Fund does not fit your risk profile anymore
As we all know that investing in a sector fund can be riskier than investing in a well-diversified fund. If you find that a particular sector fund has become volatile, then it makes sense to get rid of it.
It is important to remember that any decision to sell your fund has to be well thought out one and not based on some immediate urge. Equally important is to remember that as a unit holder you have the cushion of your fund manager weeding out the over priced and laggards out of the portfolio.
The key, therefore, is to focus on the fund selection. If you are invested in a good fund from a fund house with a proven track record, most of your worries are taken care of. This decision itself will save you of a lot of botheration of keeping a track of the market.
If you decide to sell, consider doing it gradually. All of us know that systematic investing is the best way for investing. It is also important to know that selling gradually also ensures certain benefits. Remember, selling some of the funds can save you money. Don’t forget, you invest to make money and not to make losses.