When You Should Make an Exit from Mutual Funds?
“Anybody can enter into good stock market strategy at the right time, but only the smart ones can make an exit at the right time.” is a popular saying that investment geeks tend to throw around. What does this mean for mutual fund investors though, especially beginners, given that Mutual Funds are traditionally meant to serve as long term investments?
When you have obvious reasons to believe that the fund has been consistently underperforming due to certain changes in asset allocation, or altering liquidity ratio, you could consider an exit from the Mutual Fund in question. It is important to keep track of how the fund manager is managing the fund & if you feel that some of the decisions taken are not in your larger interest, it makes sense to exit the fund.
If your mutual fund is consistently giving lower than an index fund, then your yields going down against your market risk. Alternatively, if your debt fund has taken too much risk that is not likely to outperform the benchmark, it may be time to exit the fund. It could also be a case of your funds being exposed to the wrong sectors at the wrong time.
Sometimes, an exit from the mutual fund is warranted on account of the financial goal being met. For example, if you have made an investment to make the down payment for your home purchase, then it makes sense to liquidate your mutual fund and use it up for the purpose it was intended for.
There could be other reasons too – for example, there are chances that your existing fund are being sold to new AMC and you may at receiving end. The key is to proactively keep track of your funds and their performance and trust your gut when it comes to exiting from mutual funds.
