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.

If your quarterly or annual report indicates that your fund has a new manager, pay attention. If the fund mimics a certain index or benchmark, it may be less of a worry as these funds tend to be less actively managed.

Change in Strategy
If you researched your fund before investing in it, you most likely invested in a fund that accurately reflects your financial goals. If your fund manager suddenly starts to invest in financial instruments that do not reflect the mutual fund’s original goals, you may want to re-evaluate the fund you are holding.

For example, if your small-cap fund starts investing in a few medium or large-cap stocks, the risk and direction of the fund may change. Additionally, some funds may change their names to attract more customers, and when a mutual fund changes its name, sometimes its strategies also change.

Consistent Underperformance
This can be tricky since the definition of "underperformance" differs from investor to investor. If the mutual fund returns have been poor over a period of less than a year, liquidating your holdings in the portfolio may not be the best idea since the mutual fund may simply be experiencing some short-term fluctuations.

However, if you have noticed significantly poor performance over the last two or more years, it may be time to cut your losses and move on. To help your decision, compare the fund’s performance to a suitable benchmark or to similar funds. Exceptionally poor comparative performance should be a signal to sell the fund.

The Fund Becomes Too Big
In many cases a fund’s quick growth can hinder performance. The bigger the fund, the harder it is for a portfolio to move assets effectively. Note that fund size usually becomes more of an issue for focused funds or small-cap funds, which either deal with a smaller number of shares or invest in stock that has low volume and liquidity.