Investment strategists usually advise an investor to put their money in carefully selected mutual fund schemes for the long term. However, that does not mean one would not redeem units even after 5-10 years, though one can jolly well stay invested if funds are performing to one’s satisfaction.
However, there are some situations in which most would sell mutual fund units. These are typically, performances which is not satisfactory for a prolonged period, fulfilment of financial goals which might have originally prompted the investment in the first place, need to rebalance portfolio, shift in the strategy of the fund concerned etc. Another compelling factor, which is easily understandable, is financial emergency. Let’s examine some of them.
When to sell Mutual Fund units
Assume a situation where a man who begins to invest in Systematic Investment Plan (SIP) in one or more mutual fund schemes with the express intention of buying a car or making the down payment of a flat for which he/she needs Rs 15 lakh. If this target is met after 10 years, one can sell the units to raise the amount. By the way, monthly SIP of Rs 5,000 for 10 years can generate more than Rs 11.50 lakh if there is a return of 12%.
Shifting investment strategy
If the investment strategy changes, you could easily sell units in a particular fund and switch them to a new one, or split up the money into new ones. For example, if volatility increases in the small-cap fund segment, one can think of selling out and move the investment into the large-cap funds, which are less volatile than small-cap funds.
Poor performance of a fund
It can so happen that the fund that you have selected doesn’t perform well for a significant time. In such situations, investment strategists would also advise you to sell out and sift to new funds that are performing.
However, there exit load must to be considered before redeeming MF units. It refers to an amount that the AMC deducts before crediting the amount to your bank account. Another is the tax applicable on the profits being made — STCG (short term capital gains) and LTCG (long term capital gains).
Any investment is made to book profits at some point in time or another. The real point is to identify situations other than financial needs. Personal Finance Business News – Personal Finance News, Share Market News, BSE/NSE News, Stock Exchange News Today
