When to sell your MF Schemes
Shrewd or objective investors always take a fresh look at their holdings. They do not fall in love with their holdings neither they hate them. They simply reassess their investments’ potential. If it has changed for worse, they just sell. Meanwhile, if nothing has changed about the fund, even though it has helped them to reach their goal, they may want to shift their money to a more conservative investment. So, it is crucial to understand under what circumstances you should look to exit the fund.
Here are some circumstances in which you should consider selling your MF schemes
Performance weakness: Short term weakness in performance should not warrant sales of your MF schemes. Consistent underperformance of the fund compared to its appropriate benchmark and category should raise the alarming bells and then you can sell.
When Manager Changes: Fund manager and analysts are important factors of an actively managed fund. So if a fund manager changes should you sell the fund? It depends. If the fund house has very strong rules to select stocks for a scheme and is backed by an analyst, the departing fund manager may not have material impact on the funds. However, if he is driving the funds solo and if the incoming fund manager does not have the relevant experience and expertise, it is time to worry and exit the fund.
Assessing Strategy Changes: A change in the strategy of a fund can be a bigger cause for concern than a manager switch. It can be an indication that a once-successful portfolio manager has lost confidence in his or her style. And in the worst-case scenario, frequent strategy shifts can indicate that the fund lacks a well-defined style and the manager is simply trying to adjust to what’s working in the markets at that time. The problem is that managers who chase trends will invariably be a day late and a dollar short. Hence a frequent change in the strategy may warrant an exit from the fund.
Rising expense ratio: One of the best predictor of future returns of a fund is expense ratio. Better performing funds have lower expense ratio. Therefore, if a fund’s expense ratio has changed without the change in asset base, it is a cause of concern. That means, if expense ratio has increased, it raises a red flag and you should exit.
Assessing your need: It is not always the changes in funds that should warrant a sell, but, you can also consider selling the MF schemes when the purpose for which you have been investing, has been fulfilled.