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Fundamental change in attributes of any fund may necessitate selling fund earlier than anticipated

When it comes to mutual funds, there are several factors to consider, ranging from where to invest to when to sell which fund. According to the ‘buy low, sell high' approach, many investors wait for the market to fall in order to purchase low and sell when the market rises, but this is easier said than done. To maximise their returns, investors must take the proper steps when selling units or leaving mutual fund investments.

The best method for selling or leaving mutual fund investments Investments that are connected to a financial goal: It is usually advisable to purchase mutual funds with a specific financial objective in mind and the appropriate asset allocation. “One has to pick the correct funds, considering numerous goal factors within each asset class,” says Anurag Garg, CEO and Founder of Nivesh. If the funds were chosen using this procedure, the investor should hang on to the assets until the financial goal is met, rather than selling on the spur of the moment due to a transient adjustment in external market conditions.”

However, an exception must be made if there is a fundamental change in the characteristics of any fund, which may necessitate selling the fund earlier than anticipated.

Changes in the External Market Situation

There are several external market conditions that need portfolio restructures. For example, “if interest rates are rising, it is wise to transfer longer duration debt funds (such as Gilt Funds) to shorter maturity debt funds, and vice versa,” says Garg.

A Fundamental Change in the Fund's Characteristics

A fundamental change in the fund's attributes may necessitate the sale of the fund's units. The change in the characteristic may result in a change in the primary rationale for the fund's investment. For example, Garg says, "SEBI modified the criteria for multi-cap fund investment allocation in September 2020." The guideline requires these funds to invest at least 25% of their assets in big, mid, and small-cap companies. This reduced the flexibility offered by such funds. It subsequently resulted in the introduction of a new category called Flexi cap funds. An occurrence like this is a fundamental change in the fund's characteristics, and it may necessitate an investor selling the units and shifting the corpus to another fund whose attributes fit the investor's requirements.”

Underperformance relative to peers

If a fund underperforms its counterparts and this underperformance can be linked to the fund manager's strategy, experts advise investors to move to better-performing peers. Before making a final choice on any exit strategy, investors must examine the consequences of exit load and taxation.

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