The fund underperforms:
If you as an investor feel that a fund is consistently underperforming, it is better to sell the Mutual Fund than face the brunt of hanging on to it. Now underperformance should be measured only on the basis of the fund’s poor performance record over numerous market cycles and not within 2-3 financial quarters. Put only those funds under red alert which have underperformed even during the bullish phase of the market.
But what must be understood is that comparison should only be made with funds that belong to the same category. For example, if you have small cap fund, it will be pointless to compare its performance to that of the global fund or a sectoral fund.
The fund deviates from its objective:
Choose a fund that is in sync with your financial goals and requirements. If you feel that your fund has deviated from its investment agenda or mandate than what it was previously, you need to exit the fund. For example, if you signed up for a small cap fund but your fund manager starts to invest your funds in large cap, you may lose your savings if you do not make a wise decision. It may not provide you the returns that you may expect thereby, making a least difference to your overall returns on your portfolio.
The exit of a star fund manager:
If, one of the best fund manager exits the fund house, your investments can be at risk since the new fund manager may not be as capable as the earlier one. But this should not be the main reason for you to exit the fund or drop the fund house. Instead be a little more watchful of your fund’s performance and try to understand the pursuits and avenues that are being utilized by your fund manager. It generally takes about a minimum of 6 months for you to understand your fund manager’s moves. And once you are satisfied with your new fund manager’s performance, hold on to the fund house.
Re balancing your portfolio:
Asset allocation of 60% in equities and 40% is debt is considered to be the best. During the course of investment, if your equities mix has inflated to 80%, cutting the excess chunk is required so that your returns are on a healthy track. The same principle is applied for debt as well.
Your goals have been achieved:
Sometimes when you link your goals with your investments, after certain point of time, you may realize that, you have gathered all the necessary funds required to fulfill your financial requirements. In such scenarios it is best to exit the fund. If you as an investor get greedy and want to remain invested for a little more time, you are only exposing yourself to more risk, especially if the funds are invested in equities. Getting into a debt of a personal loan or home loan etc to bridge the gap between your goal and your finances may not be a very desirable situation, after you have followed a strict SIP route.
Things to remember:
Investing in the right instruments for a stipulated time period, with the perfect balance of debt and equity is always better to follow. However, another most important point you should remember is that, once you get an idea as to when you will be exiting your fund, transferring it to a debt fund is a wise decision. Get to know more about Systematic Transfer Plans (STPs) and Systematic Withdrawal Plans (SWPs) that your fund house offers you and make the most of it.
Investing in STPs is mostly advised, since it requires your fund, 2-3 years prior to its maturity, to be transferred to a debt account where it is secured from the volatile market conditions.
SWPs just enable withdrawals and you decide the place where your funds need to be invested. Comparatively STPs takes care of this function and does not leave your money to be lying idle.