You should regularly review your Mutual Fund portfolio and assess the reasons to stay invested or exit a fund altogether.
While investing is a long-term game, and Mutual Fund vehicles help you achieve your long-term financial goals, that is not to say that you won’t have to review your portfolio along the way. While these may involve adding new funds or channelling different amounts of money into different kinds of funds, there may also be a situation where you might need to exit a fund altogether.
Here are some reasons when this might be necessary, and how you can strategise your financial decisions around these scenarios.
Change In Fund Particulars
One of the valid reasons for off-loading one fund or the other from your financial portfolio is changes – gradual or sudden – in its mandate, ownership or fund manager. You invest in Mutual Funds for a reason, and if these reasons change, you are best advised to re-evaluate your position with respect to them and take a call on whether – in this context – you still need a particular fund in your Mutual Fund portfolio.
This may also include the actual performance of a fund. If it is unable to beat the benchmark over a significant amount of time (3 – 5 years), or if the risk and return is not to your liking (particularly in the case of a debt fund), you can consider exiting the fund.
Overlap in Holdings
Whether it is by design or just a function of time, you may realise that two or more funds in your portfolio happen to invest in the very same stocks, or even the same class of stocks or market cap leading to an unintended overlap. In such a case, you may not be achieving optimum diversification through multiple funds and can well leave at least one of them.
There could be various other reasons for exiting a fund. For instance, you may be investing for a goal which has been nearly achieved, and you can redeem the fund to re-invest in shorter-term holdings. You may also leave funds because you have too many of them, and this typically is an exercise you can undergo during the annual review of your portfolio’s asset allocation.
A key takeaway is to not exit a fund just because it has achieved stellar gains: equity is a long-term asset class and will help you grow your money only over the long-term, surpassing inflation. Constantly exiting and re-entering the market may prove an impediment to this process.