It is very unlikely that when you buy a mutual fund, your plan is to keep it forever. Nobody does that unless you are someone like Warren Buffet. Common investors like us regularly need to sell our investments, including mutual funds. So when you buy units in a mutual fund, sooner or later, you will have to sell it.

Now broadly speaking, there can be two reasons to sell your fund. First is because of your personal reasons and second is because of fund-related reasons. Let’s see few examples of both these scenarios:

Reasons Related To You

1) You can sell a fund when it has already served its purpose. It could have been bought to fund some short or medium term goal like buying a car, or creating a small corpus to fund the down-payment of you property. In case you had bought it with a clear target for fund’s utilization in mind, and if that target is achieved, then you should sell it. It’s possible that target amount is not achieved due to market downturns but you still need the money. In that case too, you need to liquidate your funds.

2) If you are now in a different stage in your life where you are getting closer to retirement and want to sell aggressive equity growth funds and switch to more stable balanced or bond funds.

3) Over a period of time, there can be changes in your risk tolerance. And if there is a mismatch between your risk appetite and your fund’s risk profile, then you should sell your funds. This change in risk profile can take place because of a number of reasons like change of job, personal or family exigencies, age, etc.

Reasons Related To Fund

1) A fund should be sold if it’s not performing as per expectations. But it’s important not to sell a fund because of poor short-term performance. One bad quarter or even a below-par year isn’t sufficient justification to ditch a fund, especially if it has a good long-term record. Usually two to three years of unexplained or dramatic under performance are appropriate indicators to sell your funds.

2) There are chances that even though your fund is performing fine, there are other funds in peer group which are much better performers for extended periods of time. It is important to base your decision on relative performance. You should compare the fund’s performance against other funds which have similar investment objectives. Comparing apples-to-apples is the only fair way to see if a fund is doing well or not.

3) In case there is a change in fund’s investment objective, then you are justified in selling it. If you bought a fund for taking exposure to blue-chip companies and all of a sudden, it starts buying small start-ups, then that’s a definite sell signal.

4) If a fund manager responsible for good performance of the fund decides to leave, it should trigger an alarm. If this is the case, it’s a good idea to give the new fund manager some time. If fund’s performance starts to falter after a year or two, it may be time to get out.

So remember, even though change is inevitable, don’t just sell you fund without a valid reason. You should sell only if there is change in circumstances from your side or from the fund’s side.

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