Mumbai: One of the most difficult questions faced by investors in the Equity Markets is “When should I sell my Stock or Mutual Fund?”

I have come across investors who are often advised to Buy and Sell, hence churning their portfolio under the name of Active Portfolio Management.

I have also heard investors say that they are continuously bombarded with Buy messages but rarely do they hear the Sell message.

For every 10 Buy recommendations that are given out, there is one Sell recommendation. Just watch the broker recommendations on business channels for an hour and you will know what I am trying to say.

Ask yourself: “How do you decide when is the time to sell”. Pause for a moment and reflect on this question. So the point really is, when should you sell your investments?

Generally there are seven situations when you should SELL:

1. When You Need the Money For a Goal or Need

You have been saving for buying a house, taking a vacation or for your child’s education. These are tangible goals for which you need money. At least 6-12 months before you need money for a goal sell your equity investments and move the funds into a fixed deposit or floating rate fund.

If the market is down at this point of time, see if you can utilise any other source of funds for your goal and check whether you can wait for an additional period of time.

This decision on whether to ride the downturn a few months before you need money is completely based on your risk tolerance and varies for different people.

2. You Need Money For a Personal Emergency

There might be a time when a personal emergency warrants far more money than you have as contingency funds. At such times when bonds, PPF and post office instruments might have a lock-in, you can look at selling your worst performing investment.

3. Your Investment Has Gone Sour

There are periods where your investment will under perform the broader market. Should you immediately sell at this point? We generally give any fund manager a couple of quarters of underperformance especially if he has a consistent track record of delivering risk-adjusted returns.

Check out the reason for underperformance whether it’s due to high concentration to few sectors, or a fund manager change or bad market timing etc. Generally when a fund does too well, there is a lot of money that flows into it and hence you might see some underperformance in the funds performance due to excess cash in its portfolio.

In terms of a direct stock investment check whether the reasons for which you invested in a particular stock are still valid whether it be an excellent management team, earnings growth and innovation. If you still believe in the company or fund manager, then you can also look at making additional investments in the stock or mutual fund.