When Should You Sell a Mutual Fund| North Loop Official Blog
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28 Mar 2020

When Should You Sell a Mutual Fund

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When Should You Sell a Mutual Fund?

If you’re invested in a mutual fund, you may be considering selling your investment after a few years, or because of a life event that means you need liquidity. Or its been a few yeas, and you’re wondering if you should exit this particular mutual fund. So, how do you know when to sell a mutual fund? Here are some factors to consider to help you make a good decision.

Selling a Mutual Fund Based on Fund Performance

An important part of considering when to sell is how the fund is performing, and have there been any significant changes in strategy at the fund:

Strategy
If the fund manager has recently changed the strategy of the mutual fund, you may want to reconsider keeping your investment. Check that the new strategy aligns with your goals, and that it is not reducing diversification in your portfolio. For example, a mutual fund focused on financials now is looking at investing in retail, which would dramatically increase your exposure to retail stocks and make your portfolio more risky.

Performance
How has the fund been performing? Is it underperforming, relative to your expectations? Be careful when evaluating this - some funds will underperform other funds, but add a welcome mix of diversification to your portfolio. However, there can be a few ways to check - find a benchmark you are comfortable with, and compare the fund’s performance to the benchmark. For example, If a fund that only invests in retail is largely underperforming retail indices, then that could be a signal. Or if the fund was meant to return 5% to help you meet your goals, but now is only returning 3% and endangering your financial goals.

Fund Size
Sometimes, a fund can grow very quickly, and thereby reduce its overall return. If this becomes an issue for you, it could be worth exiting that particular mutual fund.
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Selling Mutual Funds Because of the Markets

There is an old saying - ‘no one can time the markets’. However, you may consider markets to be extremely overvalued, and want to sell your mutual fund investment to book the maximum capital gain. Only do so if you are a savvy financial investor with years of experience - we always recommend staying invested for the long term.

Things to Consider When Selling a Mutual Fund

Apart from the larger reasons for selling your investment in a mutual fund, remember to consider the financial implications of the act of withdrawing your investment:

Exit Loads/ Withdrawal Fees
Some funds have exit loads (or withdrawal fees) that they charge to withdraw your investment. Usually this is if the investment is less than a year old, but make sure to check before withdrawing! Read more about withdrawal fees here .

Taxes on Your Profits
When you sell your investment, you will be liable to pay taxes on any capital gains. Make sure you’re aware of these taxes, as they differ by funds and also change according to the time period of the investment. Read more about taxes on mutual funds here .

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This publication is provided for general information purposes only and is not intended to cover every aspect of the topics with which it deals. It is not intended be advice. You must obtain professional advice before taking, or refraining from, any action on the basis of the content in this publication. The information in this publication does not constitute legal, tax, investment or other professional advice from North Loop or its affiliates. We make no representations, warranties or guarantees, whether express or implied, that the content in the publication is accurate, complete or up to date. All opinions expressed do not reflect the views of North Loop nor are endorsed by North Loop.