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When to Sell your Mutual Fund Investments
05 Jan 2023

Mutual funds are some of the best investment products today, catering to different targeted investors. Investors view a mutual fund investment as a safe way to invest, compared to stocks and shares, and many other assets. Even if you are a risk-taker, you can diversify your finances by investing in a mutual fund that gives you moderately secured returns. 

A mutual fund is such that investors contribute different amounts of money to a fund, based on how much each individual investor seeks to invest. This fund is used to purchase a variety of securities, which may be solely stocks, bonds, or a hybrid range of securities that pose less of a risk. Depending on how much you have invested in the fund, your returns will reflect accordingly. A fund manager takes care of the management of the fund and once you buy mutual funds, all you have to do is sit back and enjoy returns. However, sometimes, a fund may underperform, and you may wish to exit it by selling your funds. Moreover, other factors may tell you when to sell your mutual funds. However, it's wise to tread with care. 

Why and When to Sell

Whenever you invest your wealth in any product, it is natural for you to anticipate some returns. This is based solely on your individual considerations. In case your mutual fund investment is showing lower yields than you expected it to, you may be prompted to cash in the units of your fund. You can always invest in other financial products. On the other hand, you may be tempted to look at other mutual funds, as the rate of return may be high. However, there are advantages and disadvantages to your redemption of mutual fund stocks. Still, there are circumstances in which the liquidation of funds may be fruitful for you. 

Times to Sell

There are many mutual funds to invest in India, in terms of categories and kinds. Mutual funds are not stock kinds of investments and you don’t have to open a demat account to invest. While they are good investment options for several investors, you may think of redeeming the shares in your mutual fund in the following circumstances: 

  • If the fund manager has changed
  • If the investment plan and strategy of the fund has been altered
  • If the fund has been consistently underperforming
  • If the fund sees too large a growth to fulfil the goals of any investor

Some Considerations

You may well go ahead and buy mutual funds, but there are some things that should be considered before you do. Although a mutual fund may invest in certain stocks and shares, they are not identical to those securities. Therefore, any decline you view in the share market does not have to mean that it is the right time to sell your mutual funds. You have to remember that stocks and shares are single units which have return rates linked to market performance. The movement of stocks and shares is largely motivated by the rationale that tells you to “purchase low, sell at a high”. This explains the reason why a declining stock market sees a panic reaction in several investors who quickly wish to dump many of their stocks. 

In terms of mutual funds, these are not singular entities. A mutual fund investment constitutes a financial instrument portfolio. This may include stocks, bonds, etc, which are selected by the fund or portfolio manager. Managers do this in accordance with the fund’s specific purpose or strategy. The main advantage of such a portfolio is the diversification of your assets, and this is not the case with stocks. 

Selling Your Funds

Only relying on the timing of the market to sell your funds is not a good strategy to stick to. A mutual fund is representative of various markets, so when you sell, you may not see the returns you wish to. If you are thinking of cashing in units of your mutual fund, you may consider these factors that affect returns: 

  • Tax - in case your mutual fund has experienced substantial capital gains in previous months, you will be subjected to taxes of this nature. If and when you sell units of your mutual fund and these have a value that exceeds the total value, you will be liable to pay capital gains tax, for a gain that is taxable. Mutual funds to invest in India can give you returns, but by selling a lot of your units, you may receive a lump sum gain that will be taxed significantly. 
  • “Back-end Loads” - You may be a mutual fund investor that has a fund which charges what is called a “back-end load”. This affects the total amount of returns you get when you redeem your fund. On the other hand, “front-end loads” are charged as a sales fee when you make your initial investment. In case this amounted to around 2%, your first investment would have lessened by this percentage. 

With a fund that has a back-end load, some charges will be minused from your total redeemed value. When you liquidate funds, these charges are typically high, so you need to analyse whether liquidation is a good idea at a certain time. You must remember that if you are selling any asset, it should ideally bear a good return for you, unless you have an urgent need to redeem your funds. 

To Sell or Not

The decision to sell your investments is entirely up to you. You may have a dire need for which it is mandatory for you to liquidate the units in a particular fund at a certain point in your life. However, the decision, if possible, should be taken with care as mutual funds can have good returns in the long run. There are other financial products that you can also explore to diversify your portfolio. You can easily visit Motilal Oswal and open a demat account to find out how other assets may work for you. Furthermore, you get stock tips and advice on many financial products that may replace your mutual fund investments to get you better returns that you aim for. 

Related Articles: Investing in Mutual Funds is Now Easy with MO Investor App | Invest In Mutual Funds Online In 5 Simple Steps |  How to Analyse Mutual Funds for Big Returns | Tax Benefits of Investing in Mutual Funds | Mutual Fund - Need of Financial Plan | Upcoming IPO 

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