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When to Exit From Equity Funds

It is easy to say that one has to buy low and sell high to make money in the equity markets. However, selling is one of the toughest decisions one can make. Most people err on the wrong side. No wonder many studies have proven that the average retail investor makes lesser returns than the market itself. You can consult a SEBI-registered investment advisor about how to invest in quality stocks and approach direct equity investment in general. Make sure you also take nuanced views on when to exit from equity funds or specific stocks you are holding.

Here are 4 reasons to exit from equity funds that you are holding.

Doesn’t Meet The Investment Philosophy

The stock no longer meets your chosen investment philosophy or one that the fund manager has stated. In our case, we believe in “Roots & Wings,” which stands for strong balance sheets coupled with growing earnings. If a company does not meet these criteria, it is a signal to exit. One may give some benefit of the doubt, but the long rope cannot extend indefinitely.

Mis-Management and Corporate Governance Issues

There are corporate governance issues. It is not a surprise that episodes of insider trading or front-running emerge ever so often. If that is the case with something in your portfolio, give it a hard look and err on the side of caution. Tracking if promoters are reducing the stock themselves is also a good way to know if something is amiss.

Rebalancing calls for a sell

Your rebalancing may ask for a strategic reallocation of investments from equity to debt. This will call for a sell action. Your stock may have run up too much and you would do a tactical re-allocation and prune your exposure to it.

Sometimes intra-portfolio rebalancing may call for selling minor quantities as well. This will act as a shock absorber to your portfolio as well over time.

For Liquidity or to meet a life goal

You need the money to fund a life event. The purpose of investing is to have a happy life. This includes deploying your wealth for a cherished goal such as funding an Ivy League education for your daughter. Or take your family on a world tour.

While one must definitely invest for the long term, one must also not hold on to equities forever. Most advisors or fund managers will tell you that equities are forever, but nothing in life lasts, including our own selves. In your later decades, s succession plan must call for transferring funds from equities to safer instruments as you age.


Selling an investment is a complex event. Using some of these thumb rules will help make the decision less emotional and painful. It also helps to assign a reason for the decision so that one does not regret it if occasionally a decision does not yield the best results. In many ways, selling an instrument is akin to pruning a garden, something necessary for building an elegant portfolio.

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