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Saying goodbye to your fund

A rising market provides a great opportunity to review your portfolio and weed out the unsuited ones. The subject of when to sell a mutual fund has been given nowhere near the amount of ink as when to buy one. But this is as important, especially when more investors conclude that "buy-and-hold" may not be valid with many funds.

The decision becomes all the more difficult as unlike buying a fund, no fund manager will trigger a sell on his fund. Moreover, it becomes important with the advent of open-ended funds which exist without a term unlike closed-ended ones which naturally come to an end on redemption.

There are several factors that make selling a fund appropriate — a fund's unsuitability to your portfolio, a deteriorating performance, a change in style or allocation of a fund, a change in management and inefficient service. All the above factors are not in any order of their importance.

The most important reason for selling a fund is the same as the reason for buying it — your investment goal. You should buy or sell funds solely on the basis of how they contribute to your long-term financial goal. Is your fund helping you achieving it?

Even the best performing fund can qualify as a "sell" if it does not suit your requirement. Your changing needs and feelings can drive a sell decision. Someone approaching retirement may wish to sell aggressive funds and put the money into more conservative investments. Sometimes it's time to sell a fund simply because you need the cash.

Taxes can provide another motive. Sometimes, taking a loss on a fund and switching to another can let the government share in the loss by providing an income tax deduction. And it may be appropriate occasionally to correct for past over-zealousness.

Sell when you just can't take it anymore. The point of investing is meeting financial goals, not developing ulcers. If your fund is so volatile that not even the vision of your brand new house calms you down, then by all means sell — as long as you'd never buy the fund back again. After suffering a 55 per cent loss in Newshare, one will never buy an IPO-focused fund.

That's a little bit more excitement than you needed. Review the list of year-to-date laggards and if you own some, find the exit route. Some funds which have become a compelling "sell" are Boinanza Exclusive, BoI Best, Premium Plus, GIC Taxsavers Growth, Dhan Taxsaver '95, Dhansamriddhi, Ind Navratna, PNB ELSS '92, GIC Taxsaver '95, Ind Ratna, GIC Growth Plus, PNB ELSS '91 and I-Nits '95.

One should sell, of course, if the fund is doing badly because it is not sticking to any discernible style. Investors who buy a fund because of the way it claims to invest should first consider whether or not the fund is doing what it said it was going to do. If the fund is not following its charter, the investor must approach the sell decision from a different angle, questioning instead the viability of the investment concept itself.

Investors who purchase a fund for a specific purpose should always sell when the fund is no longer satisfying that aim. Investors should always sell a fund when their own goals have changed. This is easy to overlook, especially if a fund is performing well. This also implies reconsideration of your investment in Unit Scheme 64.

Mutual Funds

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