While investing in mutual funds, there are a variety of points one demands to figure out — beginning from exactly where to invest to when to sell which fund. Based on the ‘buy low, sell high’ method, numerous investors wait for the industry to fall to get low and sell the units when the industry is higher, but it is a lot easier mentioned than completed.
Investors, as a result, have to have to comply with the suitable method although promoting units or exiting from mutual fund investments to get the maximum advantage.
The suitable method for promoting or exiting from mutual fund investments
Investments linked to Financial Goal: It is generally suggested to get mutual funds with a clear monetary objective in thoughts and the suitable asset allocation. Anurag Garg, CEO and Founder, Nivesh, says, “One needs to buy the right funds, considering multiple objective parameters within each asset class. If the selection of funds has been done with this process, then the investor needs to hold on to the investments till the financial goal is achieved and not take an impulsive decision to sell due to some temporary shift in external market conditions.”
Having mentioned that, one demands to make an exception if there is a basic adjust in the attribute of any fund, which could call for promoting the fund earlier than planned.
Change in External Market Situation: There are numerous external industry aspects that call for investors to restructure their portfolios. For instance, Garg adds, “if interest rates are rising, then it is prudent to shift the longer maturity debt funds (like Gilt Funds) to shorter maturity debt funds, and vice versa.”
A shift in Fundamental Attribute of Fund: There could be a basic shift in the attributes of the fund, which could call for promoting the units of the fund. The shift in the attribute could lead to altering the fundamental cause for which the investment was made in the fund.
For instance, Garg adds “SEBI changed the rules for investment allocation by multi-cap funds in September 2020. The rule required these funds to allocate a minimum of 25 per cent to large, mid and small-cap stocks. This took away the flexibility such funds enjoyed. It then led to the creation of a new category of Flexi cap funds. An event like this is a fundamental change in the attribute of the fund, and may require an investor to sell the units and shift the corpus to another fund whose attributes match with the requirements of the investor.”
Underperformance compared to peers: If a fund is underperforming peers and such underperformance can be attributed to the method becoming adopted by the fund manager, then authorities say the investor can take calls to shift to superior-performing peers. For all exit choices, investors also have to have to think about the implications of exit load and taxation prior to taking the final selection.