Selling Mutual Funds

It is almost inevitable that some day you are going to want to sell your shares in a mutual fund. Most people do keep their mutual fund investments for a very long time, it's true, but it is also very common for people to need or want to sell them at some point. You may find that the fund is not performing to your expectations. You may run into financial difficulties and need the cash, or you may just find a better investment for your money.

It is important to know when the best time to sell your shares would be, because you may have to pay taxes when you sell them, and you may lose money if you sell them when they aren't performing very well.

If you are only selling a portion of your shares in a fund, one of the most urgent things for you to know before you sell is the rule if "FIFO." You may have heard of FIFO in other areas before. It means first in, first out. Meaning, if you have purchased shares in a mutual fund on different occasions, at different prices, the shares you sell will be the first shares you bought. You can also specify which shares are sold, but this is only done if you take the correct actions to do so.

If you have good records of the shares you bought, when you bought them, and at what price, you can specify which shares you wish to sell. You can have your broker or fund company share just those specific shares. You can also plan in advance in case you need to sell at some point in the future, by placing standing instructions with your broker to sell in a certain way. You can always change this later.

Mutual funds are designed to be held on to for the long term. Because of this, they like to discourage active trading by charging fees for early sales. For example, they may charge you a hefty fee if you sell your shares within 30 days or six months of purchase. If you have not owned your shares for very long, you sell your shares, you should carefully read your fund's policies with regards to early sale fees.

Also, some types of shares may carry back-end charges that were waived when you purchased. If you bought these types of shares, you would be required to hold those shares for a certain period, typically six years, before you would have the fee waived completely. The fee typically declines at a certain rate every year, and the earlier you sell, the more you would have to pay in back-end charges.

Finally, you should never sell shares in December. If you sell your shares no later than November, you can avoid paying taxes on year-end distributions. If you contact the fund manager, he or she will be able to tell you the exact date that you will incur a tax charge on distributions, and you should sell before that date.