Skip to main content

How to decide when to exit a Mutual Fund?



Investors are often more worried about exiting an equity mutual fund than they are about investing in it. This kind of anxiety is natural.


Most of us are oriented towards action. Once we have invested, the next action is to figure out the right time to redeem our investment. However, the answer to this question is actually very simple. It's the exact opposite of what you did while deciding when to invest and chose a fund to invest in. I'm not being facetious. Let's first look at the 'when' question. When did you invest? Obviously, when you had the money to spare. I mean, that's the first condition for being able to invest, right? The opposite of having money to spare is to need money. That's the right answer, then. You should redeem your investment when you need the money.

The real idea behind the above rule is that you should not try and time the market. If you are an equity fund investor, you should be in it for the long-term and you should be investing steadily. Most of all, you should not be watching the market like a hawk, ready to pounce on the first opportunity to 'book a profit', or some such idea. So the answer to the 'when' is entirely internal to your needs, rather than anything external.


The second part of the exit problem is figuring out if and when a particular fund has gone from being investment worthy to something that should be exited (and the money redeployed in another, presumably better, fund). Again, the answer is the exact opposite to how you chose the fund. When you invested, the first stage was to choose a fund that was of the right type. If you needed a very conservative option, you may have chosen an MIP, or an equity-oriented hybrid fund for a little higher returns or an aggressive multi-cap fund for the highest possible returns regardless of risk, and so on.


The first thing to do is to see if the category of fund still makes sense. Are the reasons why you chose to be aggressive or conservative still valid? If they aren't, then that's again one reason to redeem your investment and shift to a different fund. Again, the reason could be opposite to the one that made you choose the investment you initially made. Further, the reason is internal to your needs, rather than something that's based on what's happening in the markets.


Last, we come to the actual fund. Finally, we have a reason that's external. Over a period of time, a fund that you had chosen carefully may just have degraded enough to warrant getting out of. Here, too, the rule of the opposite holds. You may have, in all probability, chosen a fund after looking at its relative risk-adjusted performance, such as expressed in the Value Research star rating or some such system. A fund should have been better than its peers as well as its benchmark on a sustained basis for you to have chosen it to begin with. Therefore, you should get out and switch to another fund if it no longer qualifies on these counts. Of course, if you've realised that the choice was a poor one, then you should in any case switch right away.


Interestingly, it's implicit in this way of thinking that there's no such thing as 'hold'. Investment analysts often rate things in three levels — buy, sell and hold. At least in funds (and maybe in stocks, too), if something is worth keeping, then it's worth buying. It can't be that an asset is not good enough for fresh investment but is somehow good enough to hold if you already have it. It doesn't seem to make sense.
 

Popular posts from this blog

Franklin India High Growth Companies Fund

Franklin India High Growth Companies Fund Online One of the key developments that the Street is keenly waiting for is a cut in interest rates by Reserve Bank of India . With demand rising gradually, a rate cut is expected to boost earnings growth for companies. In such a situation, schemes which invest in high growth companies are best suited, especially when seen from a long-term perspective. One such scheme is Franklin India High Growth Companies Fund. Fund managers Anand Radhakrishnan, Roshi Jain and Srikesh Nair strictly follow valuation parameters when it comes to choosing stocks.Valuation parameters, such as enterprise value, price-to-earnings growth ratio, forward price-to-sales ratio and discounted earnings per share, play a critical role in selecting companies for investments. Taking into account these parameters, the fund managers invest in companies which are poised for high growth in their respective sectors. This approach has been in favour of the scheme and it has perform...

Atal Pension Yojana contribution Tax Benefit for spouse

Contributions to Atal Pension Yojana (APY) are eligible for the same tax benefits as the NPS. This means that the contributions can be claimed under Section 80CCD (1B). The current limit for Section 80CCD (1B) is   Rs   50,000, over and above the   Rs   1.5 lakh limit under Section 80C. Section 80 CCD (1) is a different one, meant to cover employers' contribution towards NPS . You cannot get tax benefit by investing in the name of your spouse under Section 80 CCD . ------------------------------ ----------------- Invest Rs 1,50,000 and Save Tax under Section 80C. Get Great Returns by Investing in Best Performing ELSS Mutual Funds Top 10 Tax Saver Mutual Funds to invest in India for 2016 Best 10 ELSS Mutual Funds in India for 2016 1. BNP Paribas Long Term Equity Fund 2. Axis Tax Saver Fund 3. Religare Tax Plan 4. DSP BlackRock Tax Saver Fund 5. Franklin India TaxShield 6. ICICI Prudential Long Term Equity Fund 7. IDFC Tax Advantage (ELSS) Fund 8. Birla Sun Life Tax Relief 96 9. ...

Debt Mutual Fund Dividends are Taxable

DDT is deducted when a non-equity fund declares dividends. Equity and balanced fund dividends are tax-free The AMC is correct to deduct the dividend distribution tax (DDT) as it is mandated by tax laws. DDT in mutual funds is deducted every time a non-equity fund declares dividends. Equity fund and balanced fund dividends are tax-free . It is possible that you have invested in a non-equity fund for the first time or have received the dividend under a non-equity fund for the first time. That is why this is the first occasion when you have come across DDT.   The rate at which non-equity schemes deduct DDT has also gone up after the July 2014 budget. This is due to a change in calculation methodology. Earlier, if the fund has to declare a dividend of R 100, it used to make a provision for R 128.3, paying R 28.3 to the taxman and distributing the balance to the investor. This allowed the investor to bear less tax since the effective tax rate was 22.07 per ce...

Avoid NFOs

  Don't get taken in by the flurry of new fund offers. You will be better off sticking to the tried and tested schemes.   For the past one year, to cash in on the bull run in equities, mutual fund houses have gone on a new fund offer (NFO) overdrive. But experts are unanimous in their advice: avoid NFOs . While past performance is not an indicator of how a fund will fare in the future, it does tell the investor how skilful the fund manager is. This crucial information is missing in an NFO. Not only is there no track record to judge an NFO by, many NFOs are similar to funds that already exist. If the new fund is similar to existing funds, you are better off investing in the latter. Around 67% of the new launches in 2014 were closed-end products. Investing in the NFO of a closed-end fund is doubly risky. In case the fund's performance is lacklustre, a closed-end fund does not allow you to exit. Even though closed-end funds are listed on the stock...

Mutual Fund Exit Load Changes

Download Tax Saving Mutual Fund Application Forms Invest In Tax Saving Mutual Funds Online Buy Gold Mutual Funds Leave a missed Call on 94 8300 8300 Mutual Fund Exit Load Changes AMCs don't communicate about any change in exit load directly with investors, but do update on their website   The exit load applicable to your investments is the load which existed at the time when you invested in the particular fund. Any subsequent changes in the exit load will not be applicable to your investments.   However, Asset Management Companies ( AMCs ) periodically publish addendums in the newspapers, which state any change in exit loads of specific schemes managed by them. Such changes are also posted on their websites. However, a direct communication to an investor is not made, considering the costs involved in doing so. In their own interests, investors should not only track the performance of the funds they i...
Related Posts Plugin for WordPress, Blogger...
Invest in Tax Saving Mutual Funds Download Any Applications
Transact Mutual Funds Online Invest Online
Buy Gold Mutual Funds Invest Now