Mutual funds are an investment option which is not new but has all of a sudden gained popularity and people are eager to try out this option. But there are various questions regarding this option and the first and foremost that arises is that what exactly is a mutual fund?
Mutual funds pools in money from many investors and they invest in the stock market. The mutual fund holder is basically a person who owns a part of the stock and thus is entitled to partial profits and risks. It’s like having a small slice of pizza from a very large slice. If you are a first time investor, it’s always better to acquaint yourself with the basic knowledge of investing. I found online platforms like https://groww.in/ very helpful and informative.
The question that arises after purchasing a mutual fund is that when do we sell our mutual funds? When is that by selling these mutual funds do we attain the maximum profit that could be attained? There are many options to this answer and a few myths as well. First to break the myths according to which the best time to sell is when one has made enough money or when market is not performing and one has to cut losses etc. According to the experts it is not profitable to sell or buy on the basis of self decision and momentary profits as it may backfire. According to the experts of the market there are causes and factors which decide when to sell your mutual funds. The most prominent of them are
- When the investment goals have been met: it is best to sell the mutual funds when the goals set by the investor has been achieved or if the investor still wants to invest he can take out his money from the risky funds and invest in the funds which are not to take that much hit when share market performs badly. But all this is to be done when the goals set earlier have been achieved.
- The scheme or the funds purchased have been constantly underperforming: The investor invests money to gain from it and if the scheme purchased is constantly giving bad returns then it is recommended to sell of that scheme or funds and invest in some other. But before selling the investor should always look for the reason behind the underperformance and then consider selling as per the predictions in the coming years.
- Change in the attributes of the funds: Change in attributes stands for change in the investment pattern, change in the structure of investment. If a company undergoes a merger with another company then this sort of things are expected to happen. If the changes are not as per your investment portfolio then it is the time to sell your funds.
- If the fund becomes too big: When the fund becomes too big it is a headache to the holder or the portfolio manager to move assets. Small funds or small investments are pretty much easy to handle and operate thus if the fund has become too big for you to handle that can be reason for selling it.
- There is a change in the investment style: If there is change in the investment style which can be due to varied reasons like if the manager wants to invest in more risky stocks to increase the returns or there have been a change in the investment strategy of the company. If the new structure is not as per your portfolio requirements or your risk range then it is better to sell of the funds.
- The manager or holder needs to rebalance his portfolio: If the holder wants to balance his portfolio (investment assets) by balancing the risks and rewards and wants to invest in where there is more returns or less risks as per his choice then the funds can be sold.
The most prominent reason that there is, other than the above given reasons is the sudden need of liquidity i.e. if there is an emergent need of liquid money. But it is highly recommended that selling of funds without any back study and basis of momentarily self decisions is not profitable.