TPast few days have seen changes in the tax systems of mutual funds, wherein the finance minister imposed 10% long term capital gains tax on the gains above Rs. 1 lakh in mutual funds, but that too only on equity mutual funds. Also these gains are considered post 31st January,2018.
On Monday(5th Feb,2018), Wall Street recorded its biggest decline since 2008. Dow Jones, the benchmark share index in the US, lost 1,175 points on Monday – almost 400 points more than the last biggest decline in a single day during the financial crisis of 2008.
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Overall this negative sentiment has created fear among investors and hence many are going for selling the stocks in the market.
Should I Sell Mutual Funds?
In short, no – don’t sell.
If you want to sell just because the markets have fallen, then it seems like a better idea to not sell.
Mutual fund investments are best made for the long-term and some ups and downs are a part of this journey.
Invest for the Long Term
Investments in equity mutual funds are meant to be for the long term. Mutual fund investments for short durations are too risky.
Over a long period of time, movements such as these are bound to happen.
When you invest keeping the long-term, some ups and downs are bound to happen.
But one thing to consider here is that, whether this sentiment is for shorter duration or longer duration.
It might so happen that the returns on some of the mutual funds are still better and withdrawing your amount from mutual funds will only lead to cut short your long-term investment plans. Consider for example:
Consider the returns of following companies of Small and Mid-cap funds
These mutual funds have returned 26.5% and 29.61% respectively in last 5 years. So considering their average returns to be the same, post LTCG tax their returns will be 23.85% and 26.65% returns respectively. These returns are better as compared to benchmark returns in the market.
Apart from this also, one needs to consider whether the investor has started investing recently in the mutual funds, what is the potential of mutual fund returns in near future.
If the investor has already gained enough from the mutual funds returns and is highly uncertain of the future, then he may sell off.
The current negative sentiment is due to global factors as well and may last for a shorter duration, hence it is better to hold on to your investments and watch out for the sentiment in the market.
Also to note here is that since some are selling off, others can buy at lower prices right now, when they see huge potential in the shares of that company.
Disclaimer: the views expressed here are of the author and do not reflect those of Groww.