Parting is such sweet sorrow -- given the manner in which they have been performing since March, 1997, when, I think, I last wrote my column for BT, probably more sweet than sorrow -- when it comes to your mutual fund investments.

Since there is precious little in any book, I thought I would start off again with my personal seller's -- rather than the usual buyer's -- guide to the mutual fund schemes.

Knowing when to sell them, as investors like you must have realised all through 1997, is almost as important as knowing when to buy mutual fund units. Especially in the case of the open-end schemes.

If you ask me, the logic of selling is actually the same as that of buying: your short-, medium-, and long-term investment goals. Thus, even the units of a five-star, low-risk fund scheme -- as per the Mutual Funds Scoreboard -- should be sold off if they do not suit your purpose.

A change in needs or feelings, tax-management, portfolio rationalisation, scheme performance -- any, or all, of these could induce you to sell. While a scheme's performance should be judged vis-à-vis your personal benchmarks, don't take the most popular ph(r)ase in the business too seriously.

Go by your own observations, backed by the numbers.

Remember: in the long run, even exceptional funds stumble, but bad funds never recover. For instance, while the returns from UTI's Mastershare cannot be dismissed because of a brief downslide, the Taurus Fund's consistent under-performance does not leave much room for hope.

Comprehending the style in which a mutual fund's investments are managed is a prerequisite to investing wisely in it.

When its style goes out of favour, a scheme's performance will suffer. But it will rebound when the style returns to favour. If you don't realise this, you will end up selling a scheme just before its performance improves -- in favour of another that is ripe for deterioration.

It is also important to differentiate between a fashion and a fad. One comes back. One does not.

Mid-cap stocks are a fashion out of favour. Initial Public Offerings are a fad that have disappeared forever. So, Morgan Stanley Growth could come back; Taurus Newshare cannot.

Suppose you buy into a scheme because of the manner in which it says it will invest, keep checking if it does so. If it starts deviating, I would, as they say, evaluate my options.

Unit Scheme 64, a balanced scheme by definition, provided larger-than-life returns for five years -- by not following its charter and investing in stocks in a bull market. But, in this year's bear market, US-64 has proved to be a disaster, unable to match the returns of even an income fund. Sure, this could prove to be a bonanza when the stockmarket booms. But my contention is that an investor in US-64 simply didn't bargain for the roller-coaster ride that he is being taken for now.

So, it isn't only performance that should prompt you to sell; the purpose matters too. If I can't figure out why my favourite scheme invests the way it does, I would immediately get out of it.

I hope the feeling is mutual.  

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