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Understanding financial success: When to sell a mutual fund for best returns

Investment in mutual funds is a lucrative option because of their potential to diversify an investment portfolio and provide high returns. However, if the mutual fund fails to deliver what was promised, it might be a wise choice to sell the mutual fund investment and use the funds to reinvest in another mutual fund or asset class. 

In this article, we will look at the different scenarios of when to sell a mutual fund to help investors make informed choices that reap profits. 

8 Scenarios when to sell a mutual fund

If the mutual fund investment is not serving the investment goals, you reconsider your investment decision. Here are some scenarios of when to sell mutual funds

  1. Mutual funds not aligning with the overall goal 

Every investment in a mutual fund takes place with a certain strategy that is in sync with the overall financial goals of the investor. However, there is a possibility that the fund manager might not always make decisions in sync and might invest in financial instruments that do not reflect the fund’s original goals. 

In such cases, investors might want to reevaluate their mutual fund holdings. With changes in the risk and the direction of the fund, the investment decision can also change. 

  1. Consistent underperformance 

In all actively managed funds such as mutual funds, the fund manager tends to play a crucial role. The underperformance marker might vary from investor to investor. However, it is important to also note that it is not recommended to sell the mutual fund if the performance has dropped for a small period as it might be because of short-term fluctuations. 

On the contrary, if a mutual fund has been underperforming for a long time then it might be time to sell the fund. To get an idea of the performance, investors can compare the performance with similar mutual funds. 

  1. Portfolio rebalancing

Having a balanced portfolio is crucial to ensure that the risks are balanced and the returns are high. This is why it is recommended to keep revisiting the portfolio to ensure that all the investments are managed. 

The rebalancing might also be necessary in case the investment goals change to bring back the portfolio to an equilibrium and work according to the new plan. As a result, the portfolio rebalancing might create a need to sell the mutual fund. 

  1. Tax loss harvesting

Tax harvesting is among the most common reasons for selling mutual funds. If the fund is in loss, to save tax, investors can sell the security at a net loss and use the funds to purchase a similar asset. 

This helps with providing the tax benefit. However, it is important to carefully calculate the profit, loss and tax amount to ensure tax benefit. 

  1. Change in market conditions 

The market conditions are bound to change from time to time which can significantly impact the investments. The market-savvy investors might sell the mutual fund when macroeconomic conditions impact the market. 

However, trying to time the market can be a risky move. Additionally, if the market is not favourable at all, investors might want to sell the mutual fund and invest their funds elsewhere to meet their return goals. 

  1. Change in investment preferences and life stage 

Investing is a lifelong journey but the investment goals keep changing with time. The priorities can change from the willingness to take higher risks for high returns to moving towards more secure investments. 

However, since mutual funds are high-return investments they might not suit the requirements of having a secure long-term investment. 

As a result, a change in the overall goal of the investor can create the need for selling mutual funds. The investment preferences are most likely to change with age as investors start looking for more secure options that might create a need to sell the mutual funds. 

  1. High expense ratio 

The expense ratio refers to the cost charged by the mutual fund managers to manage the fund on behalf of the investor. This is an expense that gets deducted from the total profits earned from the fund. 

In case the mutual fund has a high expense ratio, it will keep reducing the profits. In such cases, if a different mutual fund investment is available with similar returns but a lower expense ratio, it can be a wise decision to sell the mutual fund. 

  1. Emergencies

Besides the market conditions, the expense ratio and investment goals, another factor that can create the need to sell a mutual fund is emergency. One of the core benefits of a mutual fund is its liquidity which allows investors to redeem the funds when faced with an emergency. 

If any such situation arises for any investor, they can sell the mutual funds and use the funds to cater to the emergency requirement. 


There are plenty of times when selling mutual funds can be a good choice or even a requirement. However, it should be a carefully thought-out decision and not an impulsive move. Additionally, investors must be patient with an investment like mutual funds and ensure that their decision is not based on a short-term fluctuation but is backed by carefully analysed strategy and long-term performance analysis. To learn more, subscribe to StockGro.


How to sell mutual funds?

To sell mutual funds, contact your financial advisor or the mutual fund company and understand the fees associated with redeeming the mutual fund. Decide how many units or shares you wish to sell and fill out the withdrawal request form to place a request with the company.

How to sell mutual funds online?

To sell a mutual fund online, visit the website of your mutual fund company and log in with your credentials. Select the number of units you wish to redeem and place a request. You will then receive the money in your bank account within a few days. 

What is the best time to invest in mutual funds?

The best time to invest in mutual funds is when you are financially prepared to invest, have a financial strategy and are willing to take the risk.

Is it recommended to sell mutual funds? 

It is recommended to sell mutual funds when they are not serving the investment goals and the money can be put to better use in a different fund or for purposes of tax harvesting.

Can mutual fund investment be used for meeting emergency requirements?

Yes, mutual funds are a highly liquid investment and can be used to meet emergency requirements. However, keep in mind that it might take a few days to get cash against the mutual fund. 

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