Investors of equity mutual funds have been seen trying to put the time in the market too much. That is, most investors wait for the market to fall to buy lower and in doing so get higher by selling units higher. It is true that 'buy low, sell high is the best strategy in the financial world but it is easier said than done.
Stock markets are volatile and it has never been an easy task to hold down or up. Sometimes, as the market continues to generate new high prices and high stock prices, there is a temptation to book profits for other investors. There is nothing wrong with that, but adhering to certain basic rules can help investors.
One has to follow the right approach when it comes to selling units or getting out of joint ventures. “As a joint investor, there is no right time to go out. The fact that you can get out of a mutual fund or have a good time out of a mutual fund means that you can put the time in the market. It is not recommended to set a time in the market. It's best to stick to the adage - Spend time in the market. However, sometimes there may be a real need for why so many need funds in the market,” said Santosh Joseph, Founder and Managing Partner, Germinate Investor Services.
Your goals are at hand
When your goals are approaching, a planned exit from equity funds to fixed water funds is required through a process called de-risk. “To achieve long-term financial goals such as education or retirement, selling equity funds before the investment period (maybe 2-3 years) would make sense. Even if you find a shortfall in say 6-7% return, liquid investments can hide the rest of your investment scope for stated purposes. Short-term goals or objectives that are now close to commitment should be met directly with mutual fund investment and not left exposed to financial market instability,” warns Prateek Mehta, Co-Founder, and CBO, Scripbox.
The function of the Fund
The effectiveness of your affiliate fund plan should be reviewed periodically. While some currencies may always work well, most actively managed currencies may not work well in the market or on the bench. During the review process, if you find one of those in your portfolio, maybe it’s time to get them out. “In some cases, selling a mutual fund may be necessary and even more important than buying that fund first. This is most likely to happen if something goes wrong with the fund's performance over a period of time. This is a very important step and should be taken with the help of a financial advisor by reviewing a standard portfolio because timely departure from the wrong fund or timely entry of funds ensures the redistribution of portfolios and restructuring,” said Mehta.
Never redeem with visual needs
The open nature of mutual funds can be a reason for many to take the easy way out. In some cases, many investors sell MF units to meet the cost of selection which should be avoided at all costs. “To the best of your ability, try to sell joint ventures only for the needs or priorities rather than for luxury purposes, especially if you have other important financial goals in the pipeline,” adds Mehta.
Re-evaluate the risks
Choosing the right MF scheme that fits a person's risk is important. “If you feel that the decision to invest in a mutual fund is not as good as your credit or equity expectations or if you feel that the risks are too high, you might consider switching your MF units to something that suits your risk and needs a profile. Even when you go from debt to money,” Joseph explained.
What to do: Enter more than you can exit
When the market falls or shows signs of weakness, many investors sell MF units and even abandon the SIP. Such dips and repairs may be temporary as seen in the past. For long-term investors, staying invested is more helpful than trying to go back when the market is recovering.
As an investor, using a SIP calculator, estimate how much money you need to meet inflation-related costs for your long-term goals and invest in them. Any collapse in the market can be used as an opportunity to add more units. “Any temporary adjustment in the financial markets can always be used as an entry point, but only if you have excessive money. In that case, don't go for other financial purposes like your emergency fund, because that should be enough to cover your monthly expenses for at least six to six months,” said Mehta.