When investors sit down to review their portfolio or they need money for a certain goal, they may have to sell or switch their mutual fund units. However, financial planners suggest investors do a basic check, before undertaking this transaction. Below are the few points which an investor should keep in mind before taking any such decision.
What are the tax implications?
Keep in mind the exit load if any , and the tax implications before you sell or switch your mutual fund units. For example, equity funds generally have an exit load of 1% if you exit before one year.
Similarly , fixed income schemes will be subject to short-term capital gains if you sell anytime before three years.
Weigh in the impact of these things on your profits before taking a decision.
Has the goal for which you were investing been met?
While investing in mutual funds, many investors tag their investments to a goal. For example, if you are saving in an equity-oriented fund for your child’s education, and you accumulate the corpus you need before time, it makes sense to switch the equity investment to a low-risk debt fund.
How has the scheme performed?
Many a time, the scheme you have invested in may not per form as per your expectations.Financial planners suggest not to look at the performance of a mutual fund scheme in isolation. Compare performance with the benchmark to know if your scheme is underperforming or the entire market is on a losing spree. If your scheme consistently underperforms for more than a year, it is time you take a deeper look at it. Check for changes in fund managers. If it does not improve and you are not satisfied with the reasons, it may be the time to exit it.
Has your asset allocation changed?
Many investors work on the principle of asset allocation to maximise returns and minimise risks. This necessitates rebalancing at regular intervals. If the equity component goes up in a bull market, you may have to sell equities and come to fixed income to keep your asset allocation constant and come back to original asset allocation.