One of the key points of investing, is to diversify your portfolio: Investing in a variety of financial instruments helps to ensure that your capital is diversified, thus reducing risk. Investing in Mutual Funds online is a great way to do so, particularly for new investors given that mutual funds in turn invest in a wide variety of securities, both equity and debt to generate returns. However, if you do invest in mutual funds online, how long should you hold them for? And when should you sell them off? There are a number of factors that could affect your decision to sell or hold your equity mutual funds.
There are a number of technical factors you can consider while you’re deciding whether you should sell or hold your equity mutual funds.
1) Performance:
In theory, this rule applies not just to equity mutual funds, but also to other investments you may have. Your investment has to perform well in order to pay off and provide you with a return. In other words, your equity mutual fund has to earn its spot on your portfolio. If the fund is consistently underperforming, then it may be something you might wanna make note of. While it isn’t necessary to opt-out of the mutual fund scheme since records show that good mutual funds are capable of underperforming in their category from time to time, it is essential to switch out ageing equity mutual funds with investments that could give better returns. When you invest in mutual funds online, you can very easily compare fund performances across time and against other funds.
2) Changes in Management:
Equity Mutual funds essentially function in a manner wherein a large sum of individuals pool in various amounts of money, which is then invested by the fund, or more specifically individuals managing the funds. These are the investors who will decide what to invest your money in. Therefore, if there is a change in management, it could be beneficial to keep a track of the performance of the fund post a change in management. If the performance is taking a dip, it is indicative of depreciation in investing decisions of the fund, which could affect your returns.
3) An Overlap in Funds:
In some cases, the performance of the fund might not render it inept to be part of your portfolio. Not only must your equity mutual fund perform well, but it must also be of use to you. If you have acquired new equity funds or investments that coincide with previous ones, then you might look into selling those mutual fund investments once you notice that you have another investment already covering that area.
Conclusion
Investing in equity mutual funds, or any other financial instrument for that matter is focused on getting returns from that investment. While deciding whether you should sell or hold your mutual funds, there are a number of aforementioned factors that could play a role in your decision. Additionally, the current market conditions at the time of your trading are also key, as it might be indicative of how mutual funds are performing.
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