The best time to sell a fund is a tricky decision, but a decision will often be made by an investor based on good performance or bad performance. If a fund has performed well and to expectations, this may have achieved the desired return for an investor in line with their investment goal, and thus it makes sense to sell. However, understanding when to sell a fund is made easier when an investor considers the following:

  1. Fundamentals – have the fundamentals of the fund changed (e.g. is the fund manager that an investor trusted initially still running the fund)? Similarly the investor should understand whether the fund still fits in with their fund portfolio and diversification strategy depending on the assets it now holds.
  2. Performance – identify the performance of a fund over meaningful period. If it has performed poorly in relation to its peers and benchmark index over the past 3-5 years, then it may be time to consider selling it if an investor no longer has faith in the future performance of the fund.
  3. Asset bloating – this occurs when a fund continues to get large amounts of incoming investment. The fund manager may find it difficult to invest all the capital efficiently as the amount of investment opportunities shrink in relation to the size of the pooled investor money. Also, a large increase in demand for a particular share can push up the individual buying price of a particular share for the fund manager. To prevent asset bloating occurring, some funds will cease from accepting money from new investors as the fund grows too big.
  4. Personal circumstances – personal circumstances are one of the key reasons to understand when selling a fund. Is an investor looking to save money for a house? Look to save money for retirement? The personal circumstance of an investor will ultimately dictate how much level of risk to accept and when it is time to sell a fund and move into a less risky or even more risky fund sector.