When is the right time to sell your mutual funds?

Mutual fund investments are done with as much care as selling them off. You can buy or sell funds at any time although you should certainly put some more thought into the latter. There are some key reasons why people usually sell off their mutual fund units. These include the following:

  • The company that you invested in is running at a loss and no profit has been made for a long time
  • You have reached your financial targets
  • Unable to manage so many options in the portfolio

Generally, the right time to sell off your mutual fund units, be it your SBI mutual fund or other similar products, is when the markets go higher. Some investors, however, have a penchant for buying and selling mutual funds frequently since they have multiple options to focus on. As a result, they periodically eliminate funds from their portfolio that are not performing decently. Some people often switch funds on account of performance factors. Many people wait it out for a couple of years before they sell off in favor of a more promising option. When should you sell your mutual fund units? The simple answer to this is that you should sell only when you really need the money.

Things that you should keep in mind

It is often witnessed that the concept of a mutual fund and the idea behind selling the same is often unclear to many investors. Mutual funds are sometimes as safe as investments made in NBFCs or banks since they are regulated and tracked by leading institutions like SEBI (Securities and Exchange Board of India and also AMFI (The Association of Mutual Funds in India). Hence, investing in UTI mutual fund or similar offerings from SBI and other reputed entities will be a safe affair for all investors.

Secondly, you should understand that the longer you stay invested, the better, in most cases, unless you are investing in a short-term fund. Allow the fund to go through a few market cycles. Be patient during NAV (net asset value) fluctuations when the markets are low. Wait for the NAV to rise and with it, the value of your investment. Over a longer period of time, mutual fund investments will give you inflation-beating returns in most cases. Also, you will only have to invest smaller amounts as SIPs every month for maintaining your mutual fund investments. Do not sell them off at the first instance. Embrace the power of compounding and link them to future goals without deciding to sell. If you have achieved your goals, see how the fund has performed and what its future prospects look like. If they seem bright enough, you may choose to retain your investment for compounding your wealth as well.

Key take-aways for investors

Hence, if you have invested in mutual funds, you should always have legitimate reasons for selling off the same. Avoid the wrongful concept of booking profits that is often promoted by financial advisors. This does not really make sense in case of mutual funds. This perception leads to people selling off winners in the portfolio and holding onto losers as per several experts. Mutual fund investments are characterized by professional service where fund managers choose which funds to sell and which to purchase. If the manager is doing a good job and the returns are decent, then you should refrain from selling at all costs.

Suppose your UTI mutual fund investment has done well and there is another fund in the portfolio that is not performing well. In this case, it could work if you sell it off but you should first assess the duration involved and to what extent the fund has not performed well. Investors usually attempt to sell off funds which have done well but may not have performed at par with some other funds by thin margins. Avoid this mistake. Someone may say that my investment fund has given returns of 20% last year although 3-4 other funds in the market have generated almost 25%. Hence, he/she may decide to make the switch to the latter. This shifting on the basis of short-term market performance will not be productive for the portfolio while hindering future rewards as well. If a fund is consistently performing poorly for 2-3 years, then you should consider selling the same.

Suppose you have invested for a period of 10-15 years or even 5 years, maintained SIPs diligently and grown the amount to what you actually require. You have to make your down payment for buying a home or pay for the higher education of your child or something else. If you are nearing this time period, you should sell off your mutual fund units and redeem the same, irrespective of the market condition. Unless it is something that can be put off if required, you should start acting at least 1-2 years before the time for cashing in on a goal arrives. Withdraw funds from the equity account and park them in a liquid fund accordingly. Make use of the automated Systematic Transfer Plan (STP) for this purpose as advised by experts.

Summing up, it can be said that investments are made for generating returns and earning more money on the same, not for selling them off. Think it over carefully before you decide to sell.

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