A question arises: Do you ride out the turbulence or cut your losses by selling? Conversely, picture yourself at the opposite end of the spectrum: you embarked on your investment journey four years ago. Encouraged by the initial growth in your mutual fund portfolio, you now ponder, "Should I cash out some or all of my holdings?"
These are the dilemmas that every mutual fund investor confronts at some point. Investors typically cite three reasons for considering selling off a fund investment: profit, loss or stagnation. Some may argue, "My investments have surged, so isn't it time to secure profits?" Others may question, "This fund has experienced recent losses, should I bail out?" And then there are those who wonder, "The fund hasn't seen any significant gains or losses, so perhaps it's time to sell." These impulses often stem from a bias for action, prompting investors to seek justification for making a move in any scenario.
Without a doubt, none of the aforementioned reasons are valid grounds for selling a mutual fund. Each rationale lacks merit on its own and may lead investors astray. Take, for instance, the notion of booking short-term profits-a concept that has long been discouraged in mutual fund investing. It's generally unwise to cash out of mutual funds until you have achieved your investment goals. Many investors mistakenly view mutual funds, especially equity mutual funds, as akin to individual stocks. However, they are as distinct as chalk and cheese. While shares represent single entities, an equity mutual fund comprises a diversified portfolio of various company shares.
This story is from the 22 April, 2024 edition of Dalal Street Investment Journal.
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This story is from the 22 April, 2024 edition of Dalal Street Investment Journal.
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