Mutual Fund Investment bole Apna Time Aayega

Imagine if you saved up to purchase the latest home entertainment system and then never ended up installing or using it because it came without an instruction manual. How would you feel? Terrible, we bet. Investing in a mutual fund and not knowing when or how to sell it is similar. After all, you buy a mutual fund investment for a purpose. It could be to fulfil a goal, meet your requirement needs or simply to come to your rescue during an emergency. However, if you don’t really know when the right mutual fund selling time is, then you could hold them forever and let them gather dust, just like your home entertainment system. The thing is, most investment literature tends to focus on ‘when to buy mutual funds`1’ and ‘which mutual funds to buy’. Many skip the most important part of a mutual fund investment, i.e., the mutual fund selling time. Generally, there are three instances when you should consider selling your mutual fund investments. These include:

1. When you achieve your goal:One of the main reasons for investing in mutual funds to achieve your financial goals. These could range from taking a family vacation in two years’ time to buying a house in 10 years and to even creating a nest egg for your retirement. To achieve these goals, you have done the right research, consulted a financial advisor, and then invested in mutual funds. Now, when you reach closer to the end of your investment time period, it is time to assess the performance of your mutual fund investments and eventually sell them to realise your goals. To that extent, the time when you reach a particular financial goal is the best time to sell the mutual fund investment that you had made for that particular goal.
2. When you need to rebalance as per your asset allocation strategy:It is well-known that in order to create a robust, long-term portfolio it is important to diversify your investment portfolio across multiple investment types based on your asset allocation strategy. Your asset allocation strategy will tell you what portion of your portfolio should be allocated to a particular investment type or asset class based on your return requirements, risk profile, and investment time horizon. However, due to changes in investment prices, sometimes your portfolio exposure can get skewed and move away from your original asset allocation strategy. This would mean that you would need to sell certain investments that have exceeded their exposure or buy certain investments that have reduced in exposure. For example, assume that your asset allocation strategy tells you that 40% of your portfolio should be in equity instruments like equity mutual funds and 60% should be in debt instruments like debt mutual funds and fixed deposits. Now, due to an equity market rally, the value of your equity mutual funds increases and as a result, your exposure to equities increases from 40% to 55%. This would be a good mutual fund selling time so that you can bring your equity exposure back down to 40%, as mandated by your asset allocation strategy.
3. When there is a change in the scheme strategy or macro-economic environment:Every mutual fund investment scheme has a certain strategy and investment mandate that it follows. As an investor, you would choose a certain mutual fund schemebased on its investment strategy. However, if there is a significant change in the investment strategy of the scheme, then you might consider selling your mutual fund investment. Similarly, the changing macro-economic environment can also prompt you to sell certain mutual funds investments. For example, in an increasing interest rate environment, you might want to sell mutual fund investments that are more sensitive to rising interest rates.

Often, we forget that the decision to sell is as important as the decision to buy. After all, the true value of your mutual fund investment can only be realised once you sell it. Up until then, it is all notional value. Issliye we say that Advisor Zaroori Hai –financial advisor can help you both make the decision to buy and the decision to sell.

An investor education initiative by Edelweiss Mutual Fund

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