What is the right time to quit your mutual fund?
Exiting your mutual fund is as crucial as getting in them. In this article, we would be discussing what is the right time to exit your mutual funds. So, stay tuned!
Behavioural finance is one of the most interesting subjects to learn as it helps you understand how people think while they make financial decisions. Across the world, there are mutual fund investors with distinct thought processes and inclinations. Some believe that buying a fund and remaining invested forever helps create wealth. Some think that the best policy lies in getting out of a fund if it is fetching lower returns.
These are the two extreme behaviours and in the middle, there are investors who would neither marry the fund nor are in a hurry to move out of the fund without prior due diligence. Having said that, one of the common factors among investors exiting their mutual funds is returns. In this article, we would be discussing when you should consider ditching your mutual fund.
When financial goals are achieved
You might sell your mutual funds on achieving your financial goals. Allocating your investments to your financial goals helps you efficiently manage your mutual fund investments as you would know beforehand why you are investing and when you need to exit.
There are instances where your selected fund might turn out to be a disaster. There can many reasons such as the change in the fundamental attributes of the fund or the fund might have shifted its style of investing or the investment philosophy. The main trigger for exit should be continued underperformance. If a fund is underperforming for past 10 rolling quarters, then this is a signal to exit. However, before you decide to exit, you should compare the scheme with its benchmark, and category and also look at its portfolio.
Fund manager’s exit
The exit or change in fund manager is not a clear trigger to exit from a fund, but it does mean a cautious road ahead. Working as a captain of the ship, the fund manager plays a crucial role in the performance of a fund. Hence, it makes sense to check the new fund manager’s previous experience and performance. Further, you should consider waiting for at least four quarters to judge the new fund managers' skills.
We don’t get any prior intuition or intimation of an emergency. The very meaning of emergency is an unexpected event. In this case, liquidity or having access to immediate cash is crucial. Hence, you might consider exiting your mutual funds. Having said that, it is advisable to have an emergency fund in place where the funds are parked in a savings bank account, bank fixed deposits and liquid funds. This will ensure that your mutual fund investments remain intact for your liquidity needs.
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