How to Know When to Sell a Mutual Fund?

We spend a lot of time picking the best mutual funds to buy but, no one really tells us when to sell a mutual fund. This is counter-intuitive because the whole purpose of investing in mutual funds is to earn profits when you sell your mutual funds.
How do you sell your mutual funds? More importantly, how do you know it’s the right time to sell your mutual funds? Read on to understand when you should & when you shouldn’t sell your mutual funds!

3 Situations When People Feel Like Selling Their Mutual Funds

1) When you’ve earned profits – You think you should quit while you’re ahead 2) When you’ve seen loses – You think you should quit & stop further loss 3) When nothing is happening – You think this isn’t working

When to Not Sell a Mutual Fund?

Neither of the 3 reasons listed above is sufficient reason to sell by itself. Just like many factors have to be considered when you’re buying MFs, many factors have to be considered when you’re selling.
In fact the whole point of investing money is to make more money right? So, when you spend days figuring out what to buy and when to buy – you should spend as much time if not more before you sell your mutual funds.
Don’t Sell Out Of Fear: At no point should you sell your Mutual Funds out of sheer fear or panic. Whenever the markets go down, investors panic & focus shifts to survival, savings. However, selling when the market crashes means you will realize the losses that you’re currently only seeing on your dashboard. The moment you buy or sell – things get real. So, before you sell you should get a full portfolio analysis.

When to Sell Your Mutual Fund?

Do it When It’s Time To Realize Your Goals – If you had invested for a home, for a trip, for your child’s college education – basically any of your PP goals and now it’s time to act on that goal – it’s a good reason to sell. But irrespective of the market conditions you must consult a financial advisor – the idea is to get an expert to help you sell in a manner that you reap the most profits and don’t end up exiting too soon or losing money by way of exit loads, taxes, etc.
Maybe You Should Sell When The Fund Is Losing Getting rid of underperforming funds seems logical right? Yeah… but don’t do it yourself. Consult your financial advisor and get them to evaluate the timeframe & degree of losses. Is your fund underperforming or are all funds in that class underperforming? Is there an obvious reason for this drop? Is recovery near? All these are questions you must ask your wealth coach.
Maybe You Should Sell When The Fund Changes: There are many ways your fund can change and while not all change means you need to sell – you must keep your eyes peeled for changes. For example in the Fund Manager changes you want to understand why it happened? Is the fund goal going to be the same or is that changing too? Again, it’s a “maybe” situation, so it’s best to consult your financial advisor and understand what they recommend.
Maybe You Should Sell When Your Portfolio Objective Changes: You may have invested in a set of funds when you were younger with a specific set of goals in mind. Now when you’re older it’s possible that your goal and objectives have changed. In such a situation you will probably look at rebalancing your portfolio. This is a good reason to sell a fund as long as you are making an informed decision and have an expert to guide you through the process.
BIG MAYBE: When market conditions may affect your fund and it’s holdings: Such impacts are usually seen in Debt funds and this is a current risk in India with issues like the ones we’ve seen with IL&FS, Vodafone, Yes Bank, etc. For such decisions, you need a very experienced mutual fund advisors (like Cube’s Wealthfirst for mutual fund advisory)
If you are more of a video content kind of person, you can also watch this episode of The Cube Wealth Show, which talks about how to know when to sell your mutual fund.

Factors to Consider When Selling Funds

  • Investment Goal

  • Fund Manager

  • Fund Size

  • Portfolio Objective

  • Market Conditions

  • Fund Holdings

  • Exit Load

  • Tax Implications

Tax Consequences of Selling a Mutual Fund

Different Mutual Funds have different lock-in periods. The tax implications also vary from short terms capital gains tax and to long term capital gains tax depending on when you withdraw.

FAQs - Frequently Asked Questions

Q. Should I sell a mutual fund before distribution?

Ans. You should not sell a mutual fund if it has not met your investment objective. You may sell your mutual fund if there are market conditions, fund changes, or portfolio changes that strongly indicate that you should sell your mutual fund. Always consult your Cube Wealth Coach before selling your mutual funds.

Q. When should I take mutual fund profits?

Ans. If it’s time to realize the goal you had invested for in the first place, then you should take profits from your mutual fund. This is provided the other conditions mentioned above are fulfilled.

Q. When you sell a mutual fund, what price do you get?

Ans. When you sell a mutual fund you get profits or realize losses based on the current value of your holdings.

Q. Can you sell a mutual fund at any time?

Ans. You can’t always sell a mutual fund. It depends on the lock-in period of the fund you have invested in.

Q. How long does it take to sell a mutual fund?

Ans. How long it takes to sell a mutual fund depends on the broker, bank, and platform you are using. It can vary from 24 hours to 7 days or more depending on the above variables.

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