Table of Contents
Chapter 1: Introduction to Mutual Funds
Chapter 2: Categories of Mutual Funds
Chapter 3: Understanding Mutual Fund Terminology
Chapter 4: Mutual Fund Costs
Chapter 5: Buying Mutual Funds
Chapter 6: Tracking and Selling Mutual Funds
Navigate This Page
Chapter 6: Tracking and Selling Mutual Funds
– Mutual Fund Table
– Online Resources
– Comparing With Other Funds
– Comparing with the Benchmark Index
– When to Sell Your Mutual Fund
– How Sell Mutual Funds
Chapter 6: Tracking and Selling Mutual Funds
Investing in mutual funds continues to be one of the best investment avenues despite the historical investment attitudes and practices having undergone significant changes since the recession in 2008. Investors tend to be more cautious now and the risk spread that mutual funds offer is even more attractive now.
While there are many good reasons for buying mutual funds, it is also necessary to understand when the time is right to sell your fund. You need to track the value of your investment regularly so that you can make the sell decision with the right timing. There are many ways in which you can keep track of your fund’s performance.
A mutual fund table gives you a good idea of the fund’s current status at a glimpse. It can be described as an overview of the fund’s financial health. The table lists previous highs and lows over a one year period to give you some basis for comparison. The previous one week’s high and low are also given. The price change at the end of each day is mentioned in dollar terms and percentage.
Understanding what each column of the table denotes helps make the right comparison and also track the value growth of the fund. This table is an important tool in evaluating the performance of your fund correctly.
There are many online resources which will help you analyze the performance of your fund from a period of a few days to a few years. Top mutual fund companies offer tools that help you track your fund’s performance. Financial websites provide a comparative analysis of different funds. With these you can get detailed information on how your fund is performing.
It is important to compare the performance of the fund you have invested in against other funds in that category. Many financial websites provide such comparisons and the results are updated on a daily basis. Even if your mutual fund gives you the returns promised at launch and keeps the risk to a minimum, it must still be comparable to similar funds in the market. If market conditions have improved significantly since you bought the fund then it is a reasonable expectation that your fund should outperform the returns advertised earlier. If your fund is falling short of the returns that other funds are delivering, it is time to sell your fund and invest in a better performing fund.
Comparing with the Benchmark Index
Market indices are a good benchmark for comparison when it comes to mutual funds. Identify the appropriate benchmark index which your fund can be compared against. The investment strategy often gives you a good idea of which index should the fund be compared with. If your fund has surpassed the index, it is an above average performer.
It is important to compare the fund with the right index to get an accurate idea of how well it has done, as otherwise you will end up with misleading conclusions. For instance, if you compare your bond fund’s growth with the Dow Jones Industrial Average, your results do not have much significance. The Dow Jones tracks the equity of 30 top companies and the returns are not relevant to your bond fund.
Watch for signs that tell you that it is time to get out of your fund investment. A mutual fund is very similar to equity in this aspect. As the market can fluctuate a lot in the long term, timing your sale is very important to gaining the maximum benefits from the investment. Track your investment regularly and look for favorable circumstances to sell. Here are some situations that can trigger a sell decision:
Meeting Specific Goals: If you have invested in a mutual fund to meet specific expenses or financial goals then the sell decision becomes easy to time. But even then, you should make sure that the fund has actually grown enough in value to make a sale worthwhile. If not, consider leaving the fund intact for a few more months or years to derive higher gains.
Decline in Value: When your shares are beginning to decline in value and you believe that further decline is on the cards, then a quick sale can limit your losses.
Fares Poorly in Comparison: If your fund fares poorly in comparison with other similar funds or benchmark indices then it is a good time to sell. You can invest in a different fund, which matches or outperforms the index.
Change in Fund Management: The success or failure of a mutual fund depends heavily on the fund manager. An expert manager can turn around even a poor performer with dynamic investment strategies and intuitive portfolio management techniques. If your fund manager is likely to change or has already been replaced by one who is not as skilled, it is a good enough reason to sell the fund. The manager’s lack of expertise will definitely affect the fund’s performance.
Change in Economic Conditions: These factors especially affect funds that focus on specific industries. Some industries are more prone to being affected by economic upheavals than others. If your fund is based on such an industry, it is advisable to pull out of the fund at the onset of any adverse changes in economic conditions. In uncertain circumstances, investing in bond funds can be much safer.
If any of these reasons apply in your case, then you can opt to sell your investment in the fund. For open ended funds, the fund issues more shares on a continuous basis and also buys back existing shares at any time. When you sell or redeem your shares, the fund repays your investment amount based on the current NAV of each share. Any exit loads will apply at this time, reducing the net repayment amount.
For closed ended funds, the shares need to be sold in the secondary market just like you would sell a stock. In this case, market forces of demand and supply determine the value of each unit of the fund. Whether it is an open-end fund or a closed-end one, the sale can usually be executed through the same channel that you used to buy the fund.
Investing in mutual funds is a good way to gain an entry into various investing avenues without exposing yourself to a high risk. Many investors rely on mutual funds to meet their financial goals and to grow their savings.
The mutual funds market offers a wide range of options to cater to all kinds of investors no matter how aggressive or conservative they may be. The many advantages of mutual funds make them an ideal investment option for both experienced investors and those who don’t have a lot of knowledge of financial markets.