Checklist for exiting from mutual fund scheme
Exiting or switching a mutual fund scheme is a critical aspect of investing in mutual funds. Many a times investors switch or sell the mutual fund units with just one reason to book profits. But it is advisable to follow a 360-degree proven checklist before making up your mind to exit or switch the scheme. Here is a checklist of points to be sure about before exiting or switching over a scheme.
Check performance
Many a times, investors feel disappointed when the scheme does not perform as per their expectation. Investors are advised to evaluate the performance of the scheme with respect to its benchmark. If the scheme is underperforming for more than a year then the investor should evaluate some other aspects like change in fund management, fund managers etc. If the position doesn’t seem to be developing, then the investment should be exited
Check asset allocation
Investor should check his asset allocation. If an investor is using approach of managing his portfolio with the principle of asset allocation, then it will necessitate the rebalancing of the portfolio at regular intervals, that is, in the falling market the equity portion should be adjusted vice versa in the rising market investor may sell the equity portion and invest into fixed income securities. So before selling the mutual fund scheme, investor should check the asset allocation.
Check investment goal
Most of the times investors link their goals to their investments. If you are planning for longer term returns such as planning for his child education, then there is no point in switching the schemes to debt schemes, if it does not match the investment goal and returns as per that goal.
Check other charges
Investor should be aware of the charges like exit load before exiting the scheme. Moreover, if any investor is exiting the investment before one year then the gain is taxed at fix rate of 15% under STCG (short term capital gain ) tax. Similarly, fixed income schemes also attract short term capital gains if investor sell any time before three years.
Only after checking these aspects investor should consider his investment decision of exiting or switching.