You might have seen good returns from your mutual fund scheme in the past. There could be signs of poor performance, and you might need to exit such MF schemes. You may need to sell mutual fund schemes for a variety of reasons.
1) Poor performance compared to benchmark If your mutual funds perform below the benchmark, you can check the details of the scheme and sell them. E.g. If a large-cap mutual fund “X”, has yielded 10% annually over the last five years, compared to SENSEX’s 13% annualized return, your X scheme may be underperforming. Before you exit, it is important to understand the reasons.
2) Fund Manager Change: The fund manager is what makes the MF scheme work. You should verify the fund manager’s past records if there have been any changes in the manager of funds. If the fund manager is not experienced, you should examine your mutual fund and consider exiting.
3) The RBI Repo Rate Impacts Debt MFs. When the RBI reduces repo rates, bond yields will fall and prices will go up. This would increase returns on debt funds. If interest rates rise, debt fund returns will fall. In this scenario, it is advisable to call the bank and exit debt funds. You should also review the RBI direction toward repo rate, and not just one.
4) Redeem according to your goals: Even though your MFs are performing well you might need to change between equity and debt depending on your financial goals. E.g. You need to reduce your equity fund exposure during retirement because it carries risk. A planned financial goal that is 2 to 3 years in advance of your retirement date is another example. You cannot invest in equity funds until you have achieved the goal. You can sell your equity MF to invest in debt funds and other debt-related instruments.
5) Doesn’t meet your objective: If you purchase an MF that does not meet your goals or objectives, you should immediately exit the program. You don’t want to regret it and keep it as it is. E.g. High-risk investors cannot bring mid-cap funds. If you have purchased mid-cap funds and are a low to moderate-risk investor you should immediately exit.
Conclusion: You should remember these points when investing in mutual funds. This will allow you to exit the mutual funds in a way that is appropriate and allows you to invest in better funds. You can get good returns on your entire mutual fund portfolio by doing this.
