Your mutual fund plan may have performed well in the past. However, there could be some signs of poor performance and you may need to get out of such MF schemes. There are various reasons/scenarios where you need to sell your mutual fund schemes.
1) Poor performance compared to benchmark – If your MF is not providing good returns, there could be any number of reasons. However, if your mutual funds are underperforming compared to the benchmark, then you should check the details of the scheme and sell said mutual funds. For example, if a large-cap mutual fund scheme “X” has delivered a 10% annualized return over the last 5 years compared to SENSEX, which has delivered a 13% annualized return, then your X scheme performs deficient. You should check the reasons before you go out.
2) Change in fund manager: The fund manager is the backbone of the performance of the MF scheme. In case there is any change to the existing fund manager who has been managing the funds well, you should check the past track record of the new fund manager. In case the fund manager does not have the proper experience, he or she should review your mutual fund and exit appropriately.
3) RBI Repo Rate Affects Debt Funds: When RBI lowers repo rates, bond yields will fall and prices will rise and this will improve debt fund returns. When you see interest rates going up, the returns on your debt fund fall. Therefore, in this situation, you need to take a call and get out of debt funds. However, you should review the direction of RBI towards the repo rate and not just one instance.
4) Redeem based on your goals – Even though your MFs are doing well, based on your financial goals, you may need to switch from equity to debt. For example, in retirement, when you need to reduce your exposure to equity funds, as it carries risk. Another example is about meeting a financial goal planned 2 or 3 years in advance. In such a case, you cannot invest in stock funds until the last minute of the goal. You can sell MF shares and then invest in debt funds or debt-related instruments.
5) Doesn’t meet your goal: When you’ve bought an MF that doesn’t meet your goal or goal, you should get out immediately rather than regret it and keep it as is. For example, mid-cap funds can only be contributed by high-risk investors. In case you are a low to moderate risk investor and have bought mid-cap funds, you should get out immediately.
Final remarks: When you invest in mutual funds, you should keep these reasons in mind so that you can exit mutual funds appropriately and invest in better funds. In this way, you can earn good returns on your entire portfolio of mutual funds.
