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Your mutual fund scheme might have given good returns in the past. However, there may be some signs of poor performance and you may need to exit such MF schemes. There are various reasons/scenarios where you need to sell your mutual fund schemes.
1) Underperformance as compared to the benchmark: If your MF is not giving good returns, there could be several reasons for the same. However, if your mutual fund is underperforming as compared to the benchmark, you should check the details of the scheme and sell such mutual funds. For example, if a Large Cap Mutual Fund “X” scheme has given 10% annual return in last 5 years as compared to Sensex which has given 13% annual return, then your X scheme is underperforming. You should check the reasons before exiting.
2) Change in Fund Manager: The fund manager is the backbone of the MF scheme’s performance. If there is a change in the existing fund manager, who is managing the fund well, you must check the past history of the new fund manager. If the fund manager has insufficient experience, you should review your mutual funds and exit appropriately.
3) RBI repo rate affects debt MFs: When RBI cuts the repo rate, bond yields will fall and prices will rise and this will improve returns in debt funds. When you see that interest rates are moving in an upward direction, your debt fund returns tend to decline. So, in this situation you should take a call and exit debt funds. However, you should review RBI’s directive for repo rate and not just once.
4) Redeem based on your goals: Though your mutual funds are performing well, depending on your financial goals, you may need to switch between equity to debt. For example during retirement where you need to hedge your exposure in equity funds because of the risk involved. Another example is about meeting a planned financial goal 2-3 years ahead of time. In this case, you cannot invest in equity funds till the end of the target period. You can sell equity MFs and then invest in debt funds or debt related instruments.
5) Doesn’t meet your goal: When you have bought an MF which doesn’t meet your goal or objective, you should exit immediately instead of regretting and keeping it as it is. Like mid-cap funds only high risk appetite investors can bring. If you are a low to medium risk investor, and have bought mid-cap funds, you should exit immediately.
Closing Remarks: When You Invest mutual fundsYou should keep these factors in mind so that you can exit from mutual funds appropriately and invest in better funds. This way you can earn good returns across your entire mutual fund portfolio.
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