InvestorQ : What is the trigger point to sell mutual funds if they are not performing well?
tanvi Patel made post

What is the trigger point to sell mutual funds if they are not performing well?

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natasha Samani answered.
5 months ago
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There could be various reasons and circumstances which can require you to sell our mutual fund. I have listed some of the crucial ones below-

Performance of the fund- If a scheme has not been generating profit for a long time, it may be time for the investor to sell the units. If a fund has been consistently underperforming in its category, or even worse its benchmark, this is definitely a red flag. 
However, you shouldn't exit a fund just because it underperforms in the short term. If it's just a short-term underperformance, you need to be patient and wait for the tide to turn.

Leadership change- No matter what fund houses say about their process-driven approach and how it renders any change in fund manager inconsequential to the performance of the fund, the truth remains that fund managers have a decisive impact on fund performance. A change in leadership definitely calls for you to proceed with caution. You should always check the previous experience and performance of the newly appointed fund manager in case of a change. This will help you determine whether it is time for you to start planning your exit from the fund.

Change in mandate- You may want to exit your fund if it changes its market-cap orientation or its investment style. For instance, if you invested in a multi-cap fund that is now operating as a small-cap fund, consider quitting it if you did not bargain for the added risk this entails. Similarly, a change to a debt fund's fundamental attributes so that it invests more in lower-rated securities may necessitate an exit.

Need for portfolio reshuffle- If you have a set asset allocation model, you may need to rebalance your holdings every now and then. This is done to return the portfolio back to its original state in case the allocation gets skewed towards any particular asset. In such a situation, the investor might have to sell or purchase more units of a fund in order to reset his or her portfolio. In case you decide to alter your investment goals, you might have to consider rebalancing your portfolio which might require you to sell any particular mutual fund units.

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