Do keep in mind that even if your fund is geared to yielding long-term rates of returns, that does not mean you have to hold onto the fund through thick and thin. The purpose of a mutual fund is to increase your investment over time, not to demonstrate your loyalty to a particular sector or group of assets or a specific fund manager.
Change in a Fund’s Manager
When you put your money into a fund, you are putting a certain amount of trust into the fund manager’s expertise and knowledge, which you hope will lead to an outstanding return on an investment that suits your investment goals.
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When you are cashing-in your mutual fund units, there are a couple of factors to consider that may affect your return:
1. Back-end loads - If you are an investor who holds a fund that charges a back-end load, the total you receive when redeeming your units will be affected. Front-end loads, on the other hand, are sales fees charged when you first invest your money into the fund.
So, if you had a front-end sales charge of 2%, your initial investment would have been reduced by 2%. If your fund has a back-end load, charges will be deducted from your total redemption value.
For many funds, back-end loads tend to be higher when you liquidate your units earlier rather than later, so you need to determine if liquidating your units now is optimal.
2. Tax consequences - If your mutual fund has realized significant capital gains in the past, you may be subject to capital gains taxes if the fund is held within a taxable account.
When you redeem units of a fund that has a value greater than the total cost, you will have a taxable gain.