Want to redeem your Mutual Funds? Find out if it’s wise to stay invested in the volatile market or not. Keep reading!
Patience is a virtue, but it is also a rare trait. The best example of this is assuming that you’re stuck in traffic. So you change lanes in hopes of getting ahead faster. However, just like the grass is always greener on the other side, the traffic in the other lanes always seem to be moving faster than your own. The irony here is that, more often than not, as soon as you switch lanes, traffic in the new lane comes to a standstill and the lane that you left starts moving faster.
A case in point, is the investment world. Sometimes, you may switch your underperforming investments to other avenues that seem to be performing better at that moment. However, just like the traffic lanes, the fund that you exited from starts giving better returns whereas the fund that you switched to starts underperforming. So, your one impulsive decision to make a hurried move can cost you those returns and reduces your profitability.
It is true that this scenario could have gone the other way as well wherein you could benefit from switching, but that’s exactly the point! Switching impulsively by looking at the fund’s performance at any given point is nothing but a gamble. If you switch this way, then you will keep switching your funds through the entire year and forego optimal returns. You can gain less (or probably nothing) and lose more time, effort and returns.
There is always the probability of the fund’s performance going either way. This means there is no way that you can predict exactly how the fund will perform in the future on the basis of past returns alone. So, refrain from switching your funds frequently out of fear.
From this situation, a few critical questions could arise like, ‘Should you always stick to your initial investment?’ and ‘Is switching funds bad for your portfolio?’
The answer to both these questions is a strong ‘’No!’’ If you have read the above paragraph carefully, you would realize that we advised against switching impulsively only. So, no! You do not have to stick to your initial investment no matter how poor its returns seem over time. The key here is to recognize true underperformance by revisiting your portfolio once a year.
This way you will be able to figure out if the funds that you’d invested in are still matching your investment objective and risk appetite or not. In case the divergence from your initial asset allocation is more than about 5%, then we would advise you to redeem, reinvest or switch your funds as per your convenience and goals.
To conclude, switching funds in a hurry can result in reduced profitability and foregoing the optimal ROI. Remember that every investment decision which you make requires a lot of deliberation. You must consider a number of crucial factors that’re involved. But instead, most people switch their funds in haste. This is because they focus too much on how their investment is currently doing and miss out on the big picture.
Any doubts related to switching funds or portfolio shuffling? Just email firstname.lastname@example.org and your expert financial advisor will get back to you. For a quicker response, call our toll-free number on 022-6713-6713.