Mutual funds are fast emerging as the investment vehicle of choice for a growing segment of Indian investors. According to statistics released by Association of Mutual Funds in India (AMFI), the Assets Under Management (AUM) of the Indian Mutual Fund industry has grown from ₹10.90 trillion as on November 30, 2014 to ₹68.08 trillion as on December 30, 2024, which translates into more than a six-fold increase in a span of a decade.

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It is imperative to sell your holdings at the right time to be able to book profits. But, how do you choose the ideal time to redeem your Mutual Fund investments?In the latest episode of Mint Money Shots, presented by Invesco Mutual Fund, Deputy Editor at Mint, Neil Borate, attempted to answer this crucial question that is prime on the mind of every mutual fund investor. Watch the full episode below,

“Make sure that your exit is just as strategic as your entry. Knowing when to exit a mutual fund is just as important as knowing when to invest in one, whether it’s due to meeting a financial goal, a tax strategy, under performance, or other factors. Making the right decision can make a difference to your financial success,” Borate said.

1.When your financial goal is met

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Every strategic investment is made with a financial goal in mind, which the money is being set aside for. This could be a child’s higher education, or buying a car, or a long-awaited holiday that you want to save up for. “One of the clearest signals to sell your mutual fund is when you have achieved a financial goal. For example, you may plan a five year SIP to buy a car. It’s prudent to sell your mutual fund investment when you have achieved your financial goal,” he said.

2.To get the tax planning right

It is imperative to understand the tax implications of every investment. Your actual returns must be calculated after deducting taxes. You must also try to maximise your gains by planning your taxation well. Tax regulations can offer opportunities for strategic selling. Borate feels that it is a good idea to liquidate your holdings if you are nearing the 1.25 lakh tax free gains limit on equity mutual funds. This will help you to get more returns.

3.If performance is below expectations

When you invest into a Mutual Fund, you sign up for a certain level of returns, based on past performance or the nature of the fund being selected. Consistent underperformance can be a clear sign to sell. Financial experts suggest looking for funds that underperform their benchmarks or your expectations. If performance of such funds lags consistently, it may be time to consider selling. Borate warns: “Not all short term underperformance is a reason to panic. There are often instances when a sector or theme-based fund could deliver stellar returns after years of underperformance. So it is essential to distinguish between temporary under performance, which is market related and more serious, structural under performance.”

4.Changes in fund strategy

Changes in a funds management or investment strategy can also prompt investors to consider selling. But, care must be taken to evaluate whether the changes are having an adverse impact. Often, the changes may not affect the overall performance of a fund. “Fund managers come and go, but investors should look at the fund’s overall consistency and adherence to its stated strategy. If a fund changes its structure, say from a large cap to a large and mid cap, it may no longer align with your goals. Or if a fund manager retires, it is wise to evaluate the style and credentials of the new manager before deciding whether to stay or sell,” Borate explained.

5.Red flags for Debt Funds

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If you are invested into Debt Mutual Funds, there are certain other red flags that you would need to watch out for. “Debt Funds come with their own set of warning signs. A declining AUM can indicate potential issues within the fund’s portfolio. A debt fund’s increasing concentration in certain securities can signal heightened risk. You may want to consider moving out of the fund in such scenarios,” Borate advised.

6.Rebalancing your portfolio

Over time, market movements can alter your portfolio’s asset allocation. Experts suggest keeping an eye on this and rebalancing as needed to maintain alignment with your goals and risk tolerance. “This doesn’t always mean selling. You can rebalance by directing future investments or adding funds to your underweight asset class. Instead of selling, deciding when to sell a mutual fund doesn’t have a one size fits all answer, take a holistic view and speak with your financial advisor,” he said.

Conclusion

It is essential to review your investment portfolio at regular intervals – you can choose to do this quarterly, monthly or yearly. This will ensure that your investments are in sync with your overall financial goals.

“Selling is as much part of investing as buying. Don’t hesitate to make changes that align with your goals and adapt to evolving needs,” Borate concluded.