What is best time to sell your mutual funds?

Stock markets are inherently volatile and it’s never an easy task to catch the bottom or the top. At times, when the market continues to make new highs and stock prices are at high valuations, there is a temptation to book profits by some investors. Nothing wrong in it, but sticking to some basic rules may help investors.

Equity mutual fund investors have been seen trying to time the market a lot. Many investors wait for the market to fall so as to buy low and in the process gain the maximum by selling the units at a high. 'Buying low, selling high’ is the best strategy in the world of investments but it’s not that easy.

One should follow the right approach as far as selling units or exiting from mutual fund investments is concerned. At Income Control, Let’s look at some of those circumstances and situations.

Are your goals nearing?

If your goals are nearing, a planned exit from equity funds to less volatile liquid funds is required through a process called de-risking. For long-term financial goals such as education or retirement, selling equity funds well in advance of the investment horizon (maybe 2-3 years) would make sense. Short-term goals or goals that are now nearing commitment should be directly met with liquid mutual fund investments and not left exposed to volatility in equity markets.

Fund Performance?

Reviewing the performance of your mutual fund scheme at regular intervals is very important. While some funds may outperform regularly, many actively managed funds may consistently under-perform the market or the benchmark. During the review process, if you find some of those in your portfolio, selling a mutual fund may become necessary and more important than buying that same fund in the first place. This is a very important step and ideally should be taken with the help of a financial advisor via regular portfolio review, as timely exit from a wrong fund or timely entry into a right fund ensures efficient portfolio reallocation and restructuring.

Never redeem for discretionary needs?

The open ended nature of mutual funds could be a reason for many to take the exit route easily. At times, many investors sell MF units to meet discretionary expenses (non-essential items) which should be avoided at all costs. Try to sell mutual funds only for needs or priority requirements instead of luxury goals, especially when you have other significant financial goals like kids education, buying a home etc.,

Re-evaluate risks?

Selecting the right MF scheme suiting one’s risk profile is important. If one feel that the decision to invest in mutual funds is not as per your expectations depending on debt or equity or if you feel the risk is too much for you, then you can consider switching your MF units to something appropriate to your risk and need profile.

Add more or exit?

When the market falls or shows signs of weakness, many investors sell MF units and even stop SIP. Such dips and corrections may be temporary as seen in the past. For long term investors, staying invested helps rather than trying to enter back when the market reverses direction. Exiting a mutual fund in the middle adds more costs.

One can easily find and use SIP calculator to estimate how much you need to save to meet inflation-adjusted cost of your long-term goals. Any fall in the market may be used as an opportunity to add more units. financial advisor may help you in this situation.