Buying and selling units of mutual funds is one of the strategies for profiting from financial markets. This investment model is popular due to its low investment risk. On the other hand, with some research on the growth rates of various industry sectors, you can choose funds that hold shares of companies in those sectors. However, trading units of these funds requires attention to certain points to increase investment safety and achieve suitable profits. In this article of FFMAG, we will discuss these points with you.
Reasons for Selling Mutual Fund Units
Buying mutual fund units is generally a long-term investment strategy. Therefore, it is important to understand the reasons why investors decide to sell these units. Below, we will review the most important reasons together.
Changes in the Asset Structure of the Fund
When buying mutual fund units, investors typically pay attention to the investment method and the type of assets in the fund’s portfolio. The type of these assets can affect the level of investment risk. For example, some funds only hold shares of companies active in the stock market. Among these funds, some focus on specific sectors such as mining, technology, or finance. Some funds also hold other assets such as bank deposits, participation certificates, and others. Therefore, by changing the composition of the fund’s assets, you may decide to sell the purchased units and invest in another fund.
Change in Fund Management or Investment Experts
Fund management has a significant impact on its performance and profitability. Therefore, in case of changes in management or investment teams, investors need to closely monitor the performance of the new team. If the new management decisions or decisions of new investment experts have a negative impact on the overall performance of the fund, you may decide to sell units of the mutual fund.
Poor Fund Performance
Sometimes, you may decide to invest in a fund based on its advertisements. However, if the fund’s performance does not match the goals and promises of its managers and presents poor performance, the best solution is to sell the units and invest in another fund. However, it should be noted that sometimes the market enters recession or prices decline. Therefore, the decrease in profits may not be related to the overall performance of the fund and may actually be related to the entire market.
Achieving Financial Goals from Investment and New Needs
The best reason for selling mutual fund units is that you have achieved your financial goals through this investment method. Another issue is related to your financial needs in a long-term planning. For example, a investor may allocate a large amount to this investment method to increase their capital, and during this time, they may also be preparing for various conditions to start a business. After preparing the necessary conditions to start a business, at the right time, the investor sells the purchased units from the fund and allocates the proceeds to launch their new business.
Read More: A Guide to Investing in the S&P 500: Building Your Path to Market Success
General Market Conditions
If you are familiar with factors affecting financial markets, including the stock market, you may consider selling mutual fund units based on your own predictions. For example, based on fundamental analysis techniques, investors are always monitoring economic factors affecting the stock market. Therefore, these individuals may conclude that the prices of shares of companies purchased by the fund have increased sufficiently, and due to reasons such as inflation, bank interest rates, national or global economic conditions, etc., prices are likely to decrease soon. Therefore, selling units at this time seems logical.
Exiting One Market and Entering Another Financial Market
One strategy for investors to reduce the value of their assets and capital is to migrate from one market to another according to market conditions. For example, while the stock market is attractive, if conditions in another market such as the digital currency market are positively evaluated, you can sell mutual fund units and try your luck in that market by buying sustainable digital currencies. Another scenario relates to times when stock prices fall or the national economy faces unfavorable conditions. Usually, in such situations, some investors decide to invest in gold or other assets.
Steps to Sell Mutual Fund Units
The first step in selling units of any mutual fund is to obtain accurate information about the sales conditions. For this purpose, you can use the information from the fund’s website. You can also contact the fund’s advisors for consultation.
At this stage, you should also inquire about the sales costs. For example, some funds offer units to you with deferred sales charges. Therefore, at the time of sale, you must also pay these charges. Additionally, you must decide how many of the purchased units you want to sell. Another point is that unlike ETF stocks, which change moment by moment, the price of these units is determined at the end of each day. Therefore, you should also consider this point in your sales planning.
Don’t Rush to Sell Mutual Fund Units
You can sell mutual fund units at any time you want. However, you should know that buying units in these funds is generally a low-risk strategy for long-term investment. Therefore, it is better not to make sudden decisions to sell with a slight decrease in profit and price fluctuations. Because asset diversification in these funds has two important consequences. The first consequence is reducing investment risk with asset diversification, and the second consequence is that usually, the prices of these units follow general market conditions and even the national economy.
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