Which mutual fund should you sell first? The loss making one?

Many investors are learning about the basics of mutual funds as the market enters a volatile phase. Sure, nobody is running to sell all the investments. But many investors are using the opportunity to find out answers to all the questions that come to their mind. One such question is how do you decide which mutual funds scheme to sell in the portfolio? The one that lost the most money?

You must be thinking about how one can address a query like that without details about the portfolio. You are right that the answer to this question depends on the investments made by the investor. Any decision taken without considering the details of the investment would do more harm. For example, your decision would be different if you are liquidating your investments for an emergency or if you are rebalancing your portfolio.

As said before each portfolio is unique in its own way. The investor may have constructed it in a particular way to suit his or her needs. So, keep in mind that various options may offer you pointers but the final decision should be made only after considering your needs.

Since most investors are witnessing losses these days let us consider the scenario. According to mutual fund advisors, most investors are comparing apples to oranges and about to take buy or sell decisions. Let us consider the example of a portfolio that has a large cap scheme, a small cap scheme, and IT scheme. As you can guess, IT schemes lost the most recently. The small cap schemes also lost more money than large cap schemes.

What would you sell in such a scenario? One, basing your decision on recent losses could be a mistake. A sector scheme like IT or a small cap scheme always falls the most in a volatile market. That should not shock or surprise you. However, you can consider selling them if you can’t deal with the volatility. Many advisors have been telling new investors to get rid of schemes that are making them lose their sleep. This is just a correction: you obviously overestimated your risk taking capacity in a bull phase and took aggressive bets.

What if you are a seasoned investor perplexed by the sudden negative sentiment in the market. Well, the market is entering a crucial phase. Even without Russian invasion, it was already dealing with interest rate hikes, liquidity tightening, higher oil prices, the likely waves of virus, etc. Most fund managers have been asking investors to be cautious in the new year in the market. Many of them have also said investors should not expect higher returns from the market this year and should not take any unwanted risk. So, your high risk investments are likely to be in red.

If you are asking the question of rebalancing your portfolio, you may proceed. You can sell your loss making schemes if you want to save on taxes. You can also consider your portfolio if all schemes are making or losing money in the same manner. You can sell a part of your investments if you’d portfolio is skewed towards a particular scheme or sector.


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