Mutual funds are often chosen as a way of investing. Most people see them as a safe way for their life savings to grow. The money you invest initially does not need to be a large amount, and it is managed by people who know the markets. They can also be sold or traded at any given time but are better left untouched, providing liquidity as well as the security of a fixed deposit. These investments can be bundled into the back of the mind, until the time comes for the investor to make the vital decision of selling his shares.
The most common reasons to liquidate such an investment are that you need contingency money, or the estimated time of maturity for your scheme has arrived. Both reasons are apt, seeing as they are why most investors invest in the first place. One may also want the money to better one’s standard of living (for example to buy a new car). There are also a large number of other causes that may require you to sell your investments.
Most investors may not have appropriate knowledge about their shares. Misinformed, they might choose to sell their shares for what they think is better. For example, they may buy shares of a fund whose NAV or Net Asset Value is currently better than what they own. The other, more aware investors might be genuinely looking to re balance their portfolio. Having exceeded their asset allocation for mutual funds, they might want to invest in other options like gold or real estate. Changes in an investor’s personal or professional life as well as advantageous fluctuations of the market (like an increase in the value of gold) may also result in this.
The greatest cause for the sale of one’s investments, however, is poor performance. The funds that you might have invested in may show poor returns when compared to others. It is necessary to look at the past performances of the fund (give it one, three or five year reviews) to know where it actually stands and if it will meet the required benchmarks. This shows if a poorly performing fund will revive, or whether you should consider selling. There also may be a change in the tax laws of a country that drastically alter your investment plans.
Changes in the fund itself may be a reason to sell. The style of the fund might change from passive to aggressive, increasing the risk profile. It may change its objectives, and start investing in large-cap funds instead of mid-cap funds, increasing your exposure to large-cap funds. When the fund manager is replaced, the direction of your investments may differ. This applies to the research team as well. The fund size may get too large to manage at times. A different team or manager may not mean you have to pull out, just that you need to keep a closer eye on your money. While all these reasons give cause for concern, investment plans should usually be adhered to, barring any drastic changes. Whatever your reasons for selling, it is important to take stock of your investments before you make any important financial decisions.