Look at following situations to sell mutual funds

Chronic Under-performer:
Investor should stay invested for long tern in a risky asset class like equity. You should wait patiently for a minimum period of 5 years to watch your investments grow. Making comparisons between similar funds proves futile. However you should make a note if your fund is continuously underperforming. Comparing each of your funds with the respective fund benchmark index for various periods like 2 years, 3years and 5 years helps. You may need to move out of a continuous under performer and move in to a continuous performer.

Changes in objectives of your mutual fund:
Next, an investor investing with definite financial objectives with allocation to different sectors and market capitalization may feel uneasy and suspicious with the change in the fund’s objectives that exposed you to greater risk or risk in other sectors also. Fund takeovers, change of ownership and mergers change the level of risk in a mutual fund portfolio. So you as an investor may find your need, not met and may want to sell the fund. This was the reason why many investors, who invested in UTI Master growth Fund, sold their funds when it changed to UTI Top 100 Fund.
Repositioning of a fund:
Though the fund has got an investment objective to invest in various market caps, so far the fund may be investing only in midcaps and positioned in the market as a large cap fund. But later, the fund may reposition the same fund as a multi cap fund and start investing in large cap stocks also. This change may not be a suitable one for an aggressive investor.
So as an investor, you need to be careful in watching the funds after investing. That too when a fund changes its positioning, you need to keep a close track of the same to prevent your investments from any adverse effect.
Appreciation in investment attained:
It is quite possible that your investment could have been shrewd and calculated and achieved the targeted appreciation ahead of time. Selling off your fund in full or part and investing in safer avenues like debt funds, fixed maturity plans and fixed deposits of companies and in banks would safeguard your money yet give you some small return.
Say you wanted to accumulate Rs.10 lacs for the higher education of your daughter/son in 5 years time. Your investments have appreciated to 10 lacs at the end of 4 year itself. It is better to change it immediately to safe and non-risky investments. If you leave the investments in the same fund, it may come down in value because of the subsequent market fall.
So when the goal value has been reached, one needs to protect the appreciation by moving out from the existing risky investments and moving in to a safer investment.
Rebalancing based on the asset allocation:
As an investor you need to maintain an overall asset allocation ratio and you need to stick to it to gain more. Sometimes your investments have appreciated and this has increased the percentage of your portfolio in equity and maybe reduced the percentage on debt and other safe avenues.
You need to realize this means that you are exposing more of your investment to the volatile equity market that was risky. This could surely be remedied with rebalancing. That is selling a portion of the over appreciated asset and reinvesting the same in the lesser appreciated asset.