Efficiently managed Mutual funds offer investors low-cost access to high quality money managers. Mutual funds span the spectrum of risk and potential returns from non-fluctuating money-market funds. But there is always a need to review the performance of the funds and reallocate your investment from time to time as the return of some funds varies a lot with time.
Under performance by a mutual Fund may not be the only reason to stop SIPs. There are many other factors also which should be kept in mind while continuing with The SIPs in a particular fund, Here’s why you may like to quit the fund despite the fund performance being well : –
1 You Need To Re-balance Your Portfolio : –
If you are re-balancing your portfolio, it may be reason enough to dump some funds and opt for others that are in sync with your goals. The trigger for re-balancing could be many. For instance, you may need to alter the risk profile of your portfolio due to age,say , when you are approaching your 50s. In such a case, you would want to move from an equity -oriented to a debt heavy portfolio. Proximity to a financial goal could also mean that you move out of equity- oriented funds and opt for safer options like balanced or liquidity funds.
2 Fund Is Not Performing As Well As Peers : –
It is possible that your fund is giving high returns over a specified period, which may seem acceptable to you in isolation. “However, if you compare it with its peers and find that other funds are giving much better and your fund is lagging behind, you may want to move out of the fund ad invest in a better performer” say some of the experts. So, a fund may be delivering high returns, but its performance should be seen relative to the category’s performance. If it does not match up, shift to a better fund.
3 You Have Reached Your Financial Goals : –
Ideally, one should align one’s investments in Mutual Funds with specific goals. So, if you invest in an equity fund for 10 years for your child’s education, you will need to exit after this period as you will require money. Have the discipline to quit even if the fund is doing exceedingly well. “Don’t get greedy for higher returns and continue with SIPs”. For instance, if you were supposed to exit in 2017, but did not do so due to bull run, you would have suffered a loss when the markets fell in 2018. You are jeopardizing your goal by not exiting when you should.
4 Fund Objective Has Changed : –
If the fund changes its objectives regarding risk or return in a way that it is not aligned with your objectives, you should quit even if the fund i performing well. For instance, if you had invested in a conservative hybrid fund, but it raises its equity holding, or a thematic fund starts including scrips not related to the prescribed theme, iot is time to end your SIPs. Instead, opt for a fund that sticks to your portfolio’s risk and return profile making it safer to reach your goals.
5 Fund Management Team Has Changed : –
If a merger or acquisition of the fund leads to a change in the management team to the fund manager quits, you could consider bailing out under some conditions. If the fund’s investment policy or objectives change and are not in sync with your goals, or you are not comfortable with the new team and believe the performance may be impacted in the future, you could consider shifting to a different fund. You can also move if you are not happy with the new fund manager’s track record.
6 Fund Overshoots Median Returns Or Benchmark : –
It is possible that the fund has performed well over several quarters, but significantly overshoots or falls below the median returns or benchmark during the period. In such a case, even though the fund is doing well, you should quit and go for a less risky option. “It may be a nigh beta fund with excessive volatility and the upside or downside swing may be huge”, says Rohira. If you have aligned the fund to a particular goal, it may not be good idea to retain the volatile fund in your portfolio taken in by the high returns. The risk associated with such funds may not be worth the promised returns.
7 Change In The Macro-economic Environment : –
If there are changes in the macro-economic policy by the government or the regulator, and the fund does not align with these or these are likely to impact it in the long run, it may be a good reason to move out. For instance, if a budget announcement renders some funds less tax-friendly than others, you may want to shift even if the fund performance is good as it may impact your returns in the long run. In such cases, to safeguard your capital, you can exit and re-invest when the scenario changes.
Some Other Salient Points For Consideration : –
The following are some of the other very important points which you must consider while you make important investment choices : –
1 Don’t Invest Based On Sales Solicitations :-
All companies have to do some promotion, but beware of the companies that advertise and solicit prospective customers aggressively with various tactics. Good companies get plenty of new business through the word-of-mouth recommendations of satisfied customers.
2 Don’t Invest In What You Don’t Understand : –
Before you invest in anything, you need to know its track record, it’s true cost and how liquid (easily convertible to cash) it is. Don’t go blindly by the advice or recommendations of brokers .
3 Minimize Fees : –
Avoid investments that carry high sales commission and management expenses. Management fees create a real drag on investment returns. Not surprisingly, higher fees investments, on average , perform worse than alternatives with lower fees.
4 Pay Attention To Tax Consequences : –
The more money you pay in taxes, the less you have for investing and playing with. For investment outside retirement accounts, you need to match the types of investments to your tax situation.
CONCLUSION : –
Investment in Mutual Funds or Exchange -Traded Fund is a better way of investment by small investors. But to understand their success is a grasp how and why these funds work for you. So, periodic review of the funds vis-a -vis your goals is very necessary. If required, you can re-allocate your investment depending on their performance.