Optimising the portfolio: Best mutual fund and stock exit strategy

When investing in stocks and mutual funds, it is important to know the right time to exit and book profits. While this time can vary from person to person and the kind of investment option, there are some general factors that can be considered for existing investments.

In this article, we will look at mutual fund and stock exit strategies to help all investors make an informed decision. 

When to exit mutual fund and stock?

It is important to understand that there are risks involved in investing in the financial market. While the investments earn profits, they can also book losses. In such a scenario, making wise and time-sensitive decisions is important. 

When you leave an investment at the right time,  you can minimise your losses and invest your money in more profitable funds and stocks. 

i) Best time to exit mutual fund 

Let us first look at the mutual fund exit strategy. It is recommended to exit a mutual fund in the following scenarios: 

1. Fulfilment of financial goals 

The first and the most positive reason why an investor should exit a mutual fund is when their investment goal has been met. 

It is important to consider profit booking as part of the overall approach which includes transitioning from growth-oriented funds to stable funds and looking for alternate investment avenues with fewer risks. 

2. Consistent poor performance 

If the mutual fund has been consistently showing poor performance and fails to deliver the expected results, then it might be time to exit the fund. However, keep in mind that sometimes due to market conditions the fund might underperform for only a limited period. 

Compare the fund performance with other similar funds as a performance marker. 

3. Changing investment needs and age requirements

At times, the investment goals of the investor change with time and the current investment no longer serves their purpose. 

With growing age, you might wish to move towards more secure investments. It is integral to understand the evolving investment goals and align the investment portfolio. 

4. Mutual fund strategy

Lastly, in case the overall goal of the mutual fund and the investment strategy change from what was originally the case, it might be a good choice to exit the fund. 

Stay informed about the changes and if the new strategy does not align with your investment goals then consider alternate investment opportunities. 

ii) Best time to exit stocks

Let us now look at the stock exit strategy. It is recommended to exit a stock in the following scenarios: 

1. Better stock investment opportunities 

The most common reason for people to exit a stock is when they find a better-performing stock.

If you find another stock that better aligns with your financial goals and is on a steady rise, it might be time to exit your current stock and invest in another stock. 

2. Degradation in the stock fundamentals 

If the fundamentals of a company degrade then it is natural that its revenue and profits will also degrade. As a result, if you identify that the stock fundamentals are not the same, it might be time to exit the stock. 

This usually occurs when the company has not come up with an innovation or product in a long time. 

3. Declining operational performance 

Another reason why investors might look for an exit option from a stock is when they observe a declining operational performance. If there is no sales growth in revenue addition that means that the overall performance might not be impressive. 

However, keep in mind that sometimes the overall market might be underperforming. So consider different factors before you exit a stock.  

4. Financial emergencies 

The core reason to invest in the share market is to make profits from investing in stocks that will increase in value. However, there might be times when there is a financial emergency and the money is needed to cater to other requirements. 

At such times, you can exit stocks and cash your funds. 

Conclusion 

Remember that investing is a long time commitment and thus you must look at all the potential reasons. We have listed a few reasons why closing an investment is a better option. Keep in mind that investing alone is not enough, constantly monitoring the investments to make valuable decisions is also important. To learn more about investments, subscribe to StockGro. 

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