Top three instances when you should consider selling your MFs

Top three instances when you should consider selling your MFs

by 5paisa Research Team Last Updated: Dec 13, 2022 - 11:07 am 17.5k Views
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In contrast to selling stocks, there are several reasons why you should sell or redeem your mutual funds. What exactly are they? Let us investigate.

People are eager to sell mutual funds and even stocks. People consider selling in two situations: when the price or NAV (Net Asset Value) is rising and when the price or NAV is falling.  

When the NAV is increasing, individuals sell out of fear of losing their existing profit, and when the NAV is decreasing, people sell out of fear of incurring more losses. However, there are several aspects that investors should think about before selling.  

Rebalancing 

Periodic rebalancing of your investment portfolio is as crucial as setting your asset allocation. Rebalancing allows you to return to your original asset allocation.

Returning to your pre-determined asset allocation enables you to retain your risk and return stance. As a result, during rebalancing, you may need to sell units of funds that have gone beyond the required weightage.

Assume your fund has been assigned a weightage of 20%. Further, due to movement in the stock market or even the bond market, it increases to 25%. So, in this case, you would need to sell 5 per cent from that fund to return back to your predetermined asset allocation of 20 per cent.

Financial goals 

Investing haphazardly proves to be a waste of time. As a result, it is always preferable to relate them to your financial goals in order to obtain an ideal portfolio that would meet your financial goals and risk. 

When you attain your objective, you will need the money you have saved. So, in order to spend the collected funds for your intended financial objective, you must sell your mutual fund units. 

Performance

Mutual fund performance is highly dynamic, and investors may see a variety of factors that contribute to it. It is acceptable for performance to deteriorate owing to external factors such as the economy, stock market volatility, and so on.  

However, internal factors such as investing philosophy, internal politics, corporate governance, a change in fund manager, and so on, can have an impact on the performance of the fund. Such funds typically have a low chance of surviving in the future. As a result, selling units of such funds and investing in another fund should be the strategy. 

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