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Breaking Up With Your Fund

The subject of when to sell a mutual fund has been given nowhere near the amount of ink (and keystrokes) as when to buy one. The most important reason for selling a fund is the same as the reason for buying it - your investment goal.

The subject of when to sell a mutual fund has been given nowhere near the amount of ink (and keystrokes) as when to buy one. But the subject is important as more investors conclude that "buy and hold" may not be valid with many funds. The decision becomes all the more difficult as unlike buying a fund, no fund manager will trigger a sell on his fund. Moreover, with the advent of open-end funds, which exist without a term, unlike closed-ends which naturally come to an end on redemption.

There are several factors that make selling a fund appropriate - a fund's unsuitability to your portfolio, a deteriorating performance, a change in style or allocation of a fund, a change in management and inefficient service. All the above factors are not in order of their importance.

The most important reason for selling a fund is the same as the reason for buying it - your investment goal. You should buy or sell funds solely on the basis of how they contribute to your long-term financial goal. Is your fund helping you achieving it? Even the best performing fund can qualify for sell if it does not suit your requirement. Your changing needs and feelings can drive a sell decision. Someone approaching retirement may wish to sell aggressive funds and put the money into more conservative investments. Sometimes it's time to sell a fund simply because you need the cash.

Taxes can provide another motive. Sometimes, taking a loss on a fund and switching to another can let the government share in the loss by providing an income-tax deduction. And it may be appropriate occasionally to correct for past over zealousness.

Sell when you just can't take it anymore. The point of investing is meeting financial goals, not developing ulcers. And if you do not have a stomach for the volatility, then by all means sell--as long as you'd never buy the fund back again. Review your own fund list and find the consistent laggards and if you own some, find the exit route. On that count, the following funds are compelling sell situation today:

Boinanza Exclusive, Canbonus, Canglobal, Dhan 80CCB (2), Dhan 88(1), Dhan Taxsaver '95, Dhan Taxsaver '96, Dhansamriddhi, Dhanvikas, GIC Growth Plus, GIC Taxsaver '95, GIC Taxsavers Growth, Ind Navratna, Ind Shelter, Ind Tax Shield, Magnum Gifts, PNB EGF '93, PNB EGF '95 and PNB EGF '96.

One should sell, of course, if the fund is doing badly because it is not sticking to any discernible style. Investors who buy a fund because of the way it claims to invest should first consider whether or not the fund is doing what it said it was going to do. If the fund is not following its charter the investor must approach the sell decision from a different angle, questioning instead the viability of the investment concept itself.

Investors who purchase a fund for a specific purpose should always sell when the fund is no longer satisfying that aim. Investors should always sell a fund when their own goals have changed. This is easy to overlook, especially if a fund is performing well.