Mutual Fund Sahi Hai. The popular campaign along with other awareness activities drew millions of first-time investors into mutual funds over the past couple of years. Just this financial year, 763,700 lakh new SIP accounts were registered till November, and this is when the performance of the domestic market is nothing to write home about, with eight of every 10 stocks on the BSE offering negative returns. While investing is important and a crucial first step towards financial freedom, even more crucial is to sell your investments on profits. When is the right time to sell your MF holdings, then?
Many investors redeem their fund units when their portfolio turns negative while other MF products are performing well. Various MF categories perform differently at different times. So, don’t obsess over returns, says Suresh Sadagopan, founder, Ladder7 Financial Advisories. Sell when the fund comes into the long-term capital gains zone. For equity funds, it is beyond 12 months and for debt funds, beyond 36. One should also take note of the time period within which exit loads are charged.
Exit when you reach your goal
Experts say, one should have an idea of how much returns they want and in what time-frame right at the time of starting the investments. If you’re closer to your goals, quit keeping in mind the exit load and the taxation part, says certified financial planner Pankaaj Maalda, adding that if you’re into pure equity fund, you should exit three years before reaching your goal and shift the money into a safer debt instrument. A prudent way is to start an automated STP (systematic transfer plan) to transfer the money from the MF to a liquid fund. If your target is 12 per cent and you are sitting on 15 per cent profits, book profits instead of greedily expecting more, he says.
When to rebalance and exit
It is often said that MF investors should avoid checking their portfolio frequently. However, it doesn’t mean that you continue with SIPs recklessly. You should review your portfolio once in a quarter and rebalance it once in a year, if required, as per your goals. That way you will know if you are invested in a right asset class or scheme or not.
Sadagopan agrees. One should review the portfolio once in six months to see if the fund is being managed as per the mandate and if it is delivering performance in line with the index and category for the level of risk taken, he says.
Exit when there is major change
If the fund house managing your fund has gone through big transformations, such as change in the investment rationale/theme or exit of a key fund manager, consider shifting your money to another MF. You must take note of your risk appetite too. Due to some unforeseen circumstances, if you need to reduce your equity exposure, exit and shift money into safer financial instruments. Similarly, if your equity portfolio has expanded rapidly, you should shift some investments into debt to rebalance your portfolio.
What to do in current scenario?
Even as the benchmark Sensex and Nifty have been hitting fresh highs, only select funds having exposure in bluechip stocks and select industry segments have been performing well. Most funds are giving worse returns than fixed deposits, but it doesn’t mean that you should exit. It is time to invest more, says Maalda, adding that when stocks are low, you buy at low cost and when the rally returns, your gains are higher. So if you have to exit, it should be on a sound basis, not merely because the stocks are down..