Ex­tra­or­di­nary sit­u­a­tions when one can con­sider ex­it­ing a fund

India Today - - COVER STORY - by Renu Ya­dav

Sell or hold—most mu­tual fund in­vestors have faced this dilemma at some point or the other. It is, of course, gen­er­ally ad­vis­able to stay put to achieve long-term goals, but un­der some cir­cum­stances, it be­comes nec­es­sary to re­assess one’s mu­tual fund in­vest­ments.


This can be a se­ri­ous con­cern if it con­tin­ues for an ex­tended pe­riod of time. In­vestors should re­mem­ber, though, that mar­kets go through cy­cles, and it is not rea­son­able to ex­pect a fund man­ager to de­liver chart-beat­ing per­for­mance year af­ter year. If there are in­stances of un­der­per­for­mance in the short term, do not panic sell. But if the sit­u­a­tion con­tin­ues for years, it is ad­vis­able to pull out of the fund. There is no point stay­ing in­vested in a fund that un­der­per­forms year af­ter year.

Change in out­look of the fund

If there is a change in the in­vest­ment out­look of the fund or the as­set man­age­ment com­pany, the kind of change that does not suit your risk ap­petite or your fi­nan­cial goals, you should con­sider switch­ing to an­other fund. For ex­am­ple, an eq­uity fund could de­cide to in­vest more in small- and mid-cap stocks. This would change the over­all al­lo­ca­tion of your funds, which may not suit your port­fo­lio—in this ex­am­ple, a higher al­lo­ca­tion to mid- and small-cap stocks will make your port­fo­lio more volatile. How­ever, one should first as­sess if the change is sim­ply a tac­ti­cal ma­noeu­vre by the fund man­ager be­fore ex­it­ing.

Change of fund man­ager

This is not a rea­son to im­me­di­ately exit the fund, but you must be aware of the new man­ager’s in­vest­ment strat­egy. Dif­fer­ent man­agers have dif­fer­ent in­vest­ing styles and philoso­phies, and if the changes do not match your in­vest­ment goals, you should re­assess your in­vest­ment.

Re­bal­anc­ing your port­fo­lio

Savvy in­vestors pick as­set classes and their ex­po­sure to those as­sets ac­cord­ing to their fi­nan­cial goals, stage of life and risk ap­petite, and they tweak these al­lo­ca­tions as one or more of these fac­tors change. Of­ten, this re­bal­anc­ing is done to tweak al­lo­ca­tions back to a risk level the in­vestor is com­fort­able with. If you had in­vested, say, in both debt and eq­uity mu­tual funds and if the eq­uity mar­kets hit a pur­ple patch, your eq­uity ex­po­sure might be­come much higher than you pre­fer. In that sit­u­a­tion, you will need to sell some of your eq­uity fund units to main­tain the as­set al­lo­ca­tion at the de­sired level. This will pro­tect you in case of a mar­ket crash.

If you need money

Ide­ally, you should have a con­tin­gency fund to meet fi­nan­cial emer­gen­cies. But if you do need cash ur­gently, you can con­sider sell­ing your mu­tual fund. There are other op­tions too, like a per­sonal loan or a credit card loan, if the amount is not too high, but in­ter­est rates on these are very high.


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