When you should book profit in your mutual fund portfolio?

By Asit Manohar
Those investors, who have their financial goals in the coming one and a half years, can consider gradually shifting their holding from equities to non-equity based instruments. (iStock)

Mutual fund investments are subject to market risk, hence it becomes important to know when one should book profit in one's mutual fund portfolio. According to tax and investment experts there is no right time to start a mutual fund SIP (systematic investment plan), but there is certainly a right time when one can book profit in one's mutual fund portfolio. They said that most ideal time for booking profit in mutual fund portfolio is when you are nearing your financial goal. However, there are some other occasions too, when one should book profit in mutual fund portfolio. Such timings are portfolio balancing or in the case of financial emergency.

Speaking on the ideal time when one should book profit in one's mutual fund portfolio; Vinit Khandare, CEO & Founder at MyFundBazaar India Private Limited said, "There are different times when you can book profit in your mutual fund portfolio. However, most ideal time for mutual fund profit booking is when you have achieved your goal-based planning, you can accordingly book your profit. In other scenario, if your portfolio balancing is essential you can certainly book a profit, which means in case you have a higher debt portfolio compared to equity then you can shift a part of it into equity or if your equities are overvalued in certain markets like of the current times then you can balance it with debt. Additionally, another reason where you can book your profits is when it’s your last resort and in case of emergencies as mutual funds provides you fastest liquidity compared to other asset classes."

Asking investors to treat mutual funds differently from the direct equity investment; Harshad Chetanwala, Co-Founder at MyWealthGrowth.com said, "When we talk about profit-booking in mutual funds it can be seen differently compared to direct equities. The mutual funds are managed by fund managers and they are in a better position to take a call on profit-booking based on their expertise and view. Hence, mutual fund investors can rely on the funds to make the right call. However, looking at the current market levels, investors of mid-cap and small-cap funds can consider booking some profits as these indices are up by 68 per cent and 90 per cent respectively in a year." He said that those investors, who have their financial goals in the coming one and a half years, can consider gradually shifting their holding from equities to non-equity based instruments.

"In an ideal scenario, one should redeem from mutual funds only when they are nearing their financial objective or if their invested fund change its mandate or the fund underperform its peers for couple of quarters.," said Harshad Chetanwala of MyWealthGrowth.com.

Asked about the mutual fund plans that an investor can think of investing if he or she is in mood for investing, Harshad Chetanwala of MyWealthGrowth.com listed out the following:

Low Risk or First time – Any NIFTY Index Fund.

Moderate Risk – Any Nifty Index Fund, Axis Bluechip Fund, Parag Parikh Flexicap Fund & Kotak Equity Opportunities Fund.

High Risk – Mirae Asset Large Cap Fund, Parag Parikh Flexicap Fund, Kotak Equity Opportunities Fund & UTI Flexicap Fund.


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