As an investor, you need to keep one point in mind. Anybody can enter the capital markets at the right time, but only a wise investor can exit at the right time.
Staying invested in mutual funds for more extended periods will indeed get you good returns after the investment duration is over. Especially when it is equity funds you have invested in, a long-term horizon helps to get the best out of your investments.
But there are certain situations which might require you to exit before the said period. Here are a few of such occasions when exit becomes a necessity.
2. Conditions When Exiting a Fund Becomes Necessary
We have told you before how it is of utmost importance that you keep track of your investments. Asset allocation and diversification can negate market fluctuations to a certain extent. However, at times you may have no other choice than to exit the mutual fund you are invested in. Below are some scenarios in which exiting is the best choice you have:
a. Consistent poor performance of the fund
If your fund is tending southwards in a consistent manner, the time has come to take a fresh look at it. However, a single month’s poor fund performance should not trigger you into a defensive mode.
Instead, compare the fund performance with the average for at least four quarters. There can be a number of reasons behind your fund’s dipping performance.
It might have taken exposure to an unsuitable sector or theme at an inappropriate time. In yet another case, your debt fund might have invested in low-credit rated securities and failed to earn high returns as planned. The worst-case scenario is when your equity fund underperforms an index fund.
If your fund’s inferior performance can be attributed to any one of these, exit the scheme.