Have you started your investment journey in mutual funds? If yes, then you would be well adverse with the fact that there are certain things you need to figure out before beginning your investment journey. Apart from choosing the right types of mutual funds for your portfolio, you must also figure out how and when to exit your mutual fund investments. To this, several investors would reply that they follow the ‘buy low, sell high’ investment strategy and would exit the schemes basis that. However, it’s easier said than done. To get the most out of your mutual fund investments, you must always adopt the right investment strategies – including during the exit of the schemes. Let’s understand how and when to exit from mutual fund investments.

Always link your investments to your financial objectives and goals

Experts advise investors to always focus on how to invest in mutual funds after properly defining their financial goals and adopting the right investment strategy. An investor should consider different investment parameters such as their risk appetite, investment horizon, financial goals, desired liquidity, etc. Following this investment strategy could be quite useful as if you have properly used this procedure, then it is advised to stick to this financial plan till the investment goals are not. An investor must not take impulsive decisions basis volatility and uncertainty in the markets. This will help them keep a check on their emotions and not being influenced by market sentiments. However, in the event of any fundamental change in your fund or change in external market conditions, you must revise your financial plan which could involve you to sell the funds earlier. Let’s understand these two conditions in detail:

  • Shift in fundamental attribute of the mutual fund investment
    This could require an investor to sell their funds earlier than they anticipated. This could lead to changing the underlying motive behind investing in the fund in the first place.
  • Change in the external market conditions
    Several external market conditions may require an investor to revisit their financial plan and change their investment strategies. For instance, if there is a decline in the interest rates, then it is advised to shift the shorter maturity bond funds to longer maturity bond funds and vice versa. Examples of longer maturity bond funds could be guilt funds.

Underperformance of the fund against other funds in the same category

If your fund is underperforming when compared to the other funds in the same category or the underlying benchmark index, then experts advise that investors must make the call to shift to better performing funds.

However, before you shift to different types of mutual funds, or simply exit the mutual fund investments, then you must check the exit load charges and other criteria of the fund before making such investment decisions. Unless your mutual fund investments have been constantly performing poor against other funds in the same category and their underlying benchmark for at least four to five years, it is advised not to leave your investments. Happy investing!

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