Investors more worried about exiting an equity MF than investing in it

Investors are often more worried about exiting an equity mutual fund than they are about investing in it. This kind of anxiety is natural.

Most of us are oriented towards action. Once we have invested, the next action is to figure out the right time to redeem our investment. However, the answer to this question is actually very simple. It's the exact opposite of what you did while deciding when to invest and chose a fund to invest in. I'm not being facetious. Let's first look at the 'when' question. When did you invest? Obviously, when you had the money to spare. I mean, that's the first condition for being able to invest, right? The opposite of having money to spare is to need money. That's the right answer, then. You should redeem your investment when you need the money.

The real idea behind the above rule is that you should not try and time the market. If you are an equity fund investor , you should be in it for the long-term and you should be investing steadily. Most of all, you should not be watching the market like a hawk, ready to pounce on the first opportunity to 'book a profit', or some such idea. So the answer to the 'when' is entirely internal to your needs, rather than anything external.

The second part of the exit problem is figuring out if and when a particular fund has gone from being investment worthy to something that should be exited (and the money redeployed in another, presumably better, fund).

Again, the answer is the exact opposite to how you chose the fund. When you invested, the first stage was to choose a fund that was of the right type. If you needed a very conservative option, you may have chosen an MIP, or an equity-oriented hybrid fund for a little higher returns or an aggressive multi-cap fund for the highest possible returns regardless of risk, and so on.

The first thing to do is to see if the category of fund still makes sense. Are the reasons why you chose to be aggressive or conservative still valid? If they aren't, then that's again one reason to redeem your investment and shift to a different fund. Again, the reason could be opposite to the one that made you choose the investment you initially made. Further, the reason is internal to your needs, rather than something that's based on what's happening in the markets.

Source: Economic Times

Thanks and Regards,
Sanchari Sinha,
Intern at DENIP Consultants Pvt. Ltd.