Mutual funds are one of the popular investment options in India. Mutual Funds gained popularity as it is simple to invest. Even one can invest small amounts through SIP in mutual funds. You would see some of your mutual fund schemes are under performing. You might even worry that some funds are under performing while other funds in the same category are giving handsome returns. How to check whether you need to continue to invest in such funds or sell them. In this article, we would provide some tips about about when you should sell your mutual fund schemes and what parameters you need to consider while reviewing them.

When to sell your mutual fund schemes?

Here are the few tips on when to sell your mutual fund scheme.

1) Check your fund performance against a benchmark

One of the quickest way is, to check how your fund has performed against benchmark in the last 1-2 years.

a) If your mutual fund has been in losses say in the last 1 year, you can check benchmark performance. If the benchmark also performed in a similar way, you don’t need to worry.

b) If benchmark has incurred lower losses or performed better than your fund and the gap is significant then it is time to review your mutual fund. E.g. benchmark has incurred loss of 10% in last 1 year, but your fund lost 15%. Another example is benchmark gave 10% returns, whereas your fund gave 4% returns. It is the time to review your fund and sell them.

2) Check your fund performance against its peers:

There are several websites that provide comparisons of the fund with its peers (e.g. moneycontrol or valueresearch etc.). The comparison would help you to know how well your fund is performing compared to its peers. If its peers are performing well, except your fund, then it is clear indication that you need to review and sell your fund. If only a few of its peers are doing good, but the fund which you invested and majority of other funds in same segment are under performers, you can continue to invest in that mutual fund scheme.

3) Check your fund performance in bear market

One of the other key parameter is how your fund performed in bear markets. Generally in a bear market, mutual funds would under perform, however, if this is inline with the stock market or its peers, then you can continue. In bear markets if your mutual fund is taking a beating with lower returns or increasing losses compared to peers or benchmark, it is time for you to review and exit your fund.

4) Has the fund manager changed?

Mutual fund schemes perform well based on fund manager’s strategy. However, there could be changes in fund manager and the performance of the funds could dip. One need to assess if there is change in fund manager and the new fund manager is not that comparable with the erstwhile fund manager, you should review and exit mutual funds. But checking this aspect would be difficult from investors perspective.

5) Invested in wrong funds compared to risk appetite

Due to advice from friends or relatives or from advisors, investors keep investing in wrong mutual fund schemes. They should invest in funds based on their risk appetite. E.g. if you are moderate to low risk taker, investing in midcap or small cap mutual funds is a wrong idea. These are for high risk investors. Also post covid-19 crisis, investments in corporate bond funds have turned risk. If you are moderate to low risk taker and investing for short term, you should avoid such funds and stick to low risk funds like liquid mutual funds. In case you have invested in such wrong funds that are not based on your risk appetite, you should sell such mutual funds.

Concluding remarks: These parameters are starting point for you to take decision about selling your mutual funds. Based on this you can review and take a call to sell your mutual fund schemes.