There are many reasons why to buy a fund. But, to sell the funds the reason should be very specific. The decision about whether to sell a fund is generally tough.
You have to figure out the potential or strength of that fund, taking care of the future returns. And if the fund you invested on is going downhill, then it’s better to exit rather to face loss.
Following are the good reasons to sell your funds:-
If your need is not satisfied.
Your objectives and investment are directly proportional to each other. As if, when you decide to change your objectives, your investment should change as well.
For an instance, suppose you started investing in a balanced fund (i.e. one that splits its assets between equity and debt) with an objective of buying a car within next 5 years. And if in case you get married and your spouse may own a house, or your parents may gift you a car or the company may allow you a car or provide you with the heavy bonus which could go towards your goal of having a car. Now, you may decide to use that money after your retirement, and in this way, your objective changed. You may sell your balanced fund and buy the equity fund. And in this way your investment is also changed.
In other situation some portfolio shifts are needed even if the goals stay stable, then you gradually reduce your exposure to stocks and increase your share in fixed – income investment. Or, you may decide to retire even few years before, as you have invested a lot for your after retirement.
So, accordingly, investment should be adjusted as per need and should be satisfactory.
When its performance is declining to an end.
If the performance is declining, then it is a serious issue. As it could send you apart of meeting your financial goals.
Although, only one year of the downfall of performance is not a serious issue. But more than that can leave you mentally disturbed. As you’re comparing your underperformer to an appropriate benchmark and its peers.
A strong outperformance may be the bigger reason to sell that underperformance. As higher gains can often indicate that the higher risk had been taken to gain the return.
It changed or you did it.
You may create a change, but don’t mix it up with your investment objectives. A change in fund management can result in a different manner. A fund could change its investment mandate but you may not go for the new one.
It could also be a case of a fund merging with another when the fund legally decided to change its objectives.
Or in another case, maybe your fund didn’t change but you did. Perhaps you have decided that the fund is too risky for you or simply it is not a good fit for you. Hence, you changed.
The same case is with the sector funds. The investors didn’t understand the investment proposition and believe that they will get permanent returns. Not realizing that those funds are temporary. Hence, changes are made.